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Gold – Resilience in the face of adversity

Gold is finding it tough going in the near-term, as markets accepts the reality that more Fed rate hikes are on the cards in 2023, and may even have to re-accelerate their hiking curve. Nevertheless, gold’s longer-term fundamentals remain healthy and attractive too, as it’s outperformed the S&P 500 since the start of the century by a factor of approximately 1.6.

It’s also worth looking at gold’s performance in terms of other currencies, instead of simply the US$ price (graphic attached). Last year, gold was criticised in some quarters for its lack of price performance (when measured in US dollars) – finishing the year where , but gold outperformed in terms of other major currencies. The reason gold ‘underperformed’ in US$ terms is that US interest rates rose faster in 2022 than most other economies, thus boosting the value of the US$, which impaired gold’s progress in US$ terms.

Gold’s performance in 2022 also saw it fulfill its traditional role as an ‘insurance policy’, whereby it maintained its value during a period of extreme volatility and significant losses in equity markets and other asset classes. Indeed, many investors sell gold to cover losses elsewhere in their investment portfolios during such periods.

Crude Oil – Setting up for a price rally

Crude oil prices have weakened over the past 12 months, much of this due to a decline in Chinese demand, but things could be set to change in 2023 ahead of a price rebound.

The first major catalyst could be China. The Chinese reopening and new refineries coming online, are set to raise crude oil imports in the world’s top importer to a record-high this year. Chinese crude oil imports could increase to average as high as 11.8 million barrels per day (bpd) this year, rising by between 500,000 bpd and 1 million bpd. This would reverse the decline of 2021 and 2022 and beat the record of an average 10.8 million bpd in yearly crude oil imports from 2020. Meanwhile, the International Energy Agency (IEA) forecasts that overall global oil demand is set to increase by 2 million bpd this year. The Chinese reopening will drive a jump in gasoline and jet fuel demand, while diesel demand is also expected to rise due to economic growth and infrastructure construction growth.

Moreover, Chinese refineries are raising utilization rates due to lower-cost crude and a surge in demand after the reopening. China will also see this year the start-up of two new refineries with a combined capacity to process 520,000 bpd of crude, which should also drive imports higher. Significantly, China’s oil refining capacity overtook the United States as the world’s largest during 2022, though its production of fuel products lagged the United States due to low utilisation rates.

At the same time, OPEC+ has extended its existing oil production cuts to the end of the year (OPEC+ agreed in October to cut oil production targets by 2 million barrels per day (bpd), which will keep a lid on supply, at a time when China demand is increasing.

Uranium – Strong January price performance

January was a strong month for uranium markets, with the U3O8 uranium spot price rising from $48.31 to $50.75 per pound during January, a 5.05% increase, whilst major international uranium mining equities gained by 14.65%. For the U3O8 uranium spot price, this marked a continuation of its robust performance, having appreciated by 14.74% during 2022 and 104.23% since December 31, 2019.

January was also characterized by growing recognition by global governments that nuclear energy plays a vital dual role, by supporting the energy transition and enhancing energy security. Belgium continued its U-turn on nuclear energy by extending the life of two nuclear reactors for 10 years – a major policy change given that Belgium had planned for a complete nuclear phase-out by 2025.

Sweden meanwhile announced that it is preparing legislation to remove the rule that caps the number of nuclear reactors and prohibits new reactor construction in new locations, a noteworthy U-turn given the number of Swedish reactor closures over the past years. Finally, South Korea announced that it had downgraded its plans for renewable energy in favour of nuclear energy, increasing its nuclear power goals from 24% to 33% of its total energy mix.

Whilst there have been an unprecedented number of announcements for nuclear power plant restarts, life extensions and new builds – that are likely to create incremental demand for uranium – the current uranium price still remains below incentive levels to restart tier 2 production, let alone greenfield development. Higher uranium prices will therefore be required to incentivize new production.


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