LAWRIE WILLIAMS:Positive on gold, mining and global economy at 121. MEYER
There was a decidedly upbeat presentation from SP Angel’s John Meyer to kick off the well-attended 121 Mining Investment Conference in London this morning. The data he picked up on turned a number of perceptions of the real state of the global economy – and that of China in particular – on their heads. In general, Meyer commented, the global manufacturing PMI is still above the 50 level, despite all the talk of a global recession and that the Chinese manufacturing sector is still growing, albeit at a very low rate compared with the past few years, even though its policy is to move from a manufacturing/exports driven economy to a more service oriented and domestic consumption related one.
He noted though that Chinese exports have been dropping – although to an extent these have been replaced by increased exports from countries like Germany as Chinese exports become less competitive with some Western products which are perceived to be of better quality. This will be a problem which will be vexing the Chinese government and may ultimately lead to a perhaps gradual move to reduce the yuan’s currency parity against that of its competitors. At the moment the yuan is still basically tied to the US dollar and the latter’s recent falls against the Euro may already be achieving some of this, but if the dollar regains strength against China’s key competitors in the export markets then that could lead to some changes ahead – particularly once the yuan becomes part of the IMF’s SDR later in the year.
The big driver for the gold price, and for other commodities mostly traded in US dollars though is the US Federal Reserve and its policies with regard to interest rate rises. Although the US economy seems to be meeting the Fed’s requirements for implementing more rate rises – 2% inflation and lower unemployment (at least in terms of official figures), there now seems to be more attention to global factors being taken into consideration by the Fed. While this may be outside the Fed’s brief recent FOMC statements have suggested that the Fed will cut back on its initially proposed four rate rises this year for fear of precipitating a global economic recession.
What we are also beginning to see is money beginning to return into the global gold and base metals mining markets with some interesting results. Major mining companies appear to have benefited at least as strongly as the junior and mid-tier sectors so far. With respect to gold this has been exemplified by the doubling of the Barrick Gold stock price in the first three months of the current year. Barrick, in retrospect, has not perhaps been the best managed gold company out there but has very much outperformed its peers on the markets and we feel this can only be because, as the biggest global gold miner, it is top of the list for institutions deciding they should at least restart investing in gold stocks to take advantage of the 15% plus rise in the gold price year to date. True Barrick’s peer companies among the mining majors have also comfortably outperformed the gold price rise too, but not to the same extent.
The overall message that perhaps could be gleaned from Meyer’s analysis of the global position is that on balance things are indeed getting better. Commodity prices are among the major beneficiaries here – and precious metals have been performing better than the others. Room for more hope!