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There are some interesting economic developments taking place that are correlated with gold in one way or another. One is the rising level of interest rates, which in the US has seen a corresponding surge in the value of the dollar, as money flows into the US chasing higher returns. A major consequence however of higher interest rates is escalating debt repayments. Growing debt piles become increasingly expensive to service, and a prime example of this can be seen right now in the US, where interest payments on US debt now exceeds defence spending. During Q3 2022, the US government paid more than $736 billion in interest on its record $31 trillion debt pile, which is more than its 2020 national defence budget of $714 billion.
Perhaps not so surprisingly, coincidentally in the US gold coin sales this year have hit a 22-year high, whilst central bank gold purchases during Q3 2022 have hit an all-time quarterly record.
The latest World Gold Council data shows that globally central banks added a record amount of gold during the third quarter. Purchases jumped to nearly 400 metric tonnes, more than double the amount compared to the previous quarter, and a new quarterly record. With these purchases, the year-to-date total for 2022 now stands at 673 tonnes, higher than any other year since 1967.
There is a growing consensus within the gold space that the worst is behind it, as the tempo of interest rate hikes begins to subside.
Iron ore has bounced from a recent low of below $80 a tonne, as market cross their fingers that possible reports of an end to China’s crushing covid lockdowns, might be true. As yet, there are no definitive indications in this regard, but iron ore prices have seen somewhat of a relief rally anyhow, no doubt the result of some bargain-hunting at low prices by Chinese buyers.
Both BHP and RIO have warned of an easing in demand for major commodities like iron ore, due to slowing global growth and monetary tightening. Also, we have no indication of any potential stimulus measure by Chinese authorities, which could potentially boost demand and economic recovery.
Margin pressures in the China steel industry has led to a shrinking in the price premium for higher grade ore.
The dominance of iron ore in the international metals sector is reflected in the graphic, which shows all of the metals mined during 2021 – including industrial metals, and precious and technology metals. By volume, iron ore accounted for 93.4% of the metals mined last year.
Market interest in a somewhat obscure metal, niobium, has been spurred by a discovery in Western Australia by a junior explorer, WA1 Resources Ltd (ASX: WA1). Its share price has been charging ahead over recent weeks, rising by more than 1,300% from its 13.5 cents at market close on 21 October to its current price just under the $2.00 level.
WA1 has been surging since presenting maiden drilling results from its West Arunta Project in late October, where it is exploring for critical minerals, including niobium. WA1 says it has found a mineralised carbonatite system at the West Arunta Project, with significant mineralisation that includes a wide intercept of 54 metres at very string mineralised grades. At the time, the company drew attention to the fact that ferroniobium metal is selling for US $45,000 a tonne. The discovery as the first of its kind in the region.
Niobium has been identified as a critical mineral by a number of countries and is a key input to future global technology needs, with ferroniobium metal (65% Nb) selling for US$45,000/tonne. Niobium is mainly utlised in the steel industry to help strengthen steel, as well as reduce weight. Market growth is steady, without being spectacular, forecast to grow at CAGR of 5% from 2021 to 2026. However, there could be upside in the renewable energy space, as niobium can help improve battery performance via improved chargeability and stability.
Brazil currently dominates niobium production, accounting for 90% of supply, but increasingly over recent years China has been a big purchaser both directly from Brazilian suppliers, and has been actively buying up deposits within Brazil, potentially creating another commodity supply headache for the West.