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Commodity Spotlight: Hopeless gold, push-and-pull for iron ore prices, coal back above US$400

Fri 12 Aug 22, 2:39pm (AEDT)
Yellow trucks at a mining site with the sun rising in the background
Source: iStock

Key Points

  • Gold briefly rallied to US$1,807 on Wednesday, but now on a three day losing streak
  • Iron ore market is forecast to stay in a deficit in 2022, buoying an otherwise deteriorating demand side
  • Europe's energy crisis expected to drive coal demand as utility providers switch from gas to coal

The Bloomberg Commodity Index rallied 5.9% so far this week amid a broad-based rebound following correction between June and July.

Bloomberg Commodity Index Futures Chart
Bloomberg Commodity Index Futures (Source: TradingView)

Gold: So much for an inflation hedge

Gold briefly rallied to US$1,807 on Wednesday thanks to the weaker-than-expected US inflation print. It's fair to say that the 'inflation hedge' narrative is now extinct.

Still, gold is on track to log a three day losing streak as US Treasury yields remain elevated and investor optimism about a Fed pivot wanes.

"Gold needs to see more data in the next couple of months to confirm that inflationary pressures are moderating," said Oanda senior market analyst, Ed Moya.

"Gold looks a little vulnerable here and momentum selling could drag prices towards the $1780 level," he added.

Gold price chart
Source: TradingView | Annotations by Market Index

Iron ore: More support is needed

Last week, China's Evergrande failed to deliver a promised US$300bn restructuring plan - another blow to the already frail property sector.

Bloomberg warned that Chinese banks face up to US$350bn in loan loses from the property crisis.

"A spiraling crisis of stalled projects has dented the confidence of hundreds of thousands of homebuyers, triggering a mortgage boycott across more than 90 cities and warnings of broader systemic risks," the article said.

Of course, China won't leave such risks unchecked, this week vowing to further support the property sector.

"Financial regulators will shore up support for property financing while several provinces have pledged to meet their growth goals," said ANZ senior commodity strategist Daniel Hynes.

Still, ANZ forecasts China to log a second consecutive year of steel production declines, down to 1bn tonnes in 2022. However, supply side constraints from Australia and Brazil is expected to keep the market tight, with a deficit of 18m tonnes in 2022, down from 44m tonnes last year.

Singapore iron ore futures
Singapore iron ore futures (Source: TradingView)

Coal: Can't keep me down

Newcastle coal futures briefly dipped below US$400 a tonne last week but on track to rebound back above the psychological level.

"Coal price face upward pressure from strong European demand. An impending energy crisis in Europe is likely to switch power utilities from gas to coal, this could increase competition for seaborne coal," wrote ANZ analysts in a note on Thursday.

"Chinese coal imports have slowed in recent months, but revival of industrial activity in China would see higher burning rates. That said, some relief could come as China and India import more Russian coal. Chinese power plants are well stocked, so imports are likely to be weak."

Newcastle coal futures
Newcastle coal futures (Source: TradingView)

 

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Written By

Kerry Sun

Content Strategist

Kerry holds a Bachelor of Commerce from Monash University. He is an avid swing trader, focused on technical set ups and breakouts. Outside of writing and trading, Kerry is a big UFC fan, loves poker and training Muay Thai. Connect via LinkedIn or email.

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