Our baseline view on gold remains unchanged: Gold will remain focused on the movements in the dollar and US treasuries for short-term trading bias. Investors with a longer-term outlook will favour accumulating on any dips as a hedge against geopolitical and macro-economic risks, which currently include stagflation, even as the Fed downplays the risk of the US entering a recession. The noble group metals have a slowdown in the global economy and supply constraints playing tug of war with price action.


Economic growth concerns and tighter monetary policy have been the predominant drivers of base metals over the past month. Underpinning the longer-term prospects for metals are supply constraints in individual metals such as aluminium. At the same time, even further out, the likes of copper remain a buy given the need for the metal in the green energy revolution.


Precious Metals

Gold has for the most part tracked developments in the dollar over the month of August.

The yellow metal climbed in tandem with a weakening greenback hitting a monthly high of $1807.93 on the 10th of August 2022 before the bears took hold once again. There has been a steady erosion in the price of gold as the market reassessed the direction of global monetary policy. Higher inflation prints globally coupled with higher energy costs and fears of a mounting energy crisis in the EU have pushed investors toward the dollar.

Equally, Fed Chairman Jerome Powell has reinforced the Fed’s resolve to tackle inflation during his speech at the Jackson Hole symposium which points to tighter monetary policy even at the expense of economic growth. Higher interest rates are negative for gold as the metal itself yields no interest.

Our view: Gold will remain at the mercy of the dollar for now. The first major support level comes in at $1700.00/oz. This level provides value for those seeking to add gold to their portfolio as a hedge against the potential for stagflation developing in the next 18 months. To the topside, $1807.50/oz is the first major resistance level which if broken will open the door for a move back to $1850.00/oz.


The Inflation Reduction Act is expected to provide long-term price support for platinum and platinum group metals as it seeks to encourage the purchase of green energy vehicles by providing tax credits for these purchases of up to $40 000. Platinum is a key component of many green technologies and thus at the very least, the metal will find a home in these technologies as its use of internal combustion engines in the form of catalytic convertors dwindles.

Nornickel, the Russian mining giant, announced this month that it sees platinum supply and demand both falling this year as supply chains remain cluttered, but will grow in 2023.

Our view: Platinum has taken its direction from the dollar for the most part this month. The noble metal remains vulnerable in the short term to both dollar strength and the threat of an economic slowdown which will hit demand. Technically $829.3/oz is providing the first major support level, while the topside sees resistance first at $896.58.00/oz, and following that $967.77/oz.


Industrial Metals

Base metals have had the following factors driving price action during August:

1. Recession bells are ringing
2. Higher energy costs curtailing the production of the likes of aluminium in the EU.
3. Chinese stimulus


Recession bells are ringing: A debate around whether the global economy is headed for a recession is raging. Although some central banks would have us believe that the global economy is headed for a soft landing, other data suggest that the risk of a deeper global recession is growing by the day.

Leading indicators provided by the OECD make this point clear as they collectively head towards levels historically synonymous with recessionary conditions. There are simply too many headwinds to navigate that are constraints to growth, including the cost-ofliving crisis, energy prices, food inflation, rising interest rates and the fallout of the war in Ukraine. Supply chains are normalising, but not to the extent that it could offset all the headwinds that persist.

The business cycle is therefore heading lower, and in the short to medium term, it seems unlikely that there will be much respite. On the contrary the situation may become that much worse through the northern hemisphere winter when the demand for energy will rise further and where the scarcity of supply will impact on households and the productivity of companies.


Higher energy costs: European energy prices have hit stratospheric levels during the month of August which has all but sidelined the production of aluminium given its massive energy requirements. The EU has however stated that it will intervene in the short term to dampen prices which have been incredibly volatile of late due to the uncertainty of Russian gas supplies. There are talks doing the rounds of price caps to stem rising prices which, apart from hurting metal refiners, is fuelling inflation and curtailing economic growth.


Chinese stimulus: Beijing remains committed to underpinning its economy following the loss of confidence in the property sector which has had a knock-on effect on other parts of the Chinese economy. The Chinese State Council announced $44bn in quotas for infrastructure spending in addition to the $44bn it announced at the end of June.

The Council also announced that power generation companies could sell CNY200bn worth of bonds and local governments will be allocated an additional CNY500bn of special bonds from previously unused quotas. 


The month’s most prominent metals

Iron Ore
Iron ore prices on various exchanges have taken their cues from developments in China, with a specific focus on the health of the economy. Beijing is strongly committed to underpinning the economy with stimulus projects following the hard lockdowns relating to COVID-19 which shrank much of 2022’s economic dynamism. There have been a number of mills restarting operations in China this month and the Chinese construction PMI number is in expansion even though it fell on the month.

Our view: The ramp-up in Chinese stimulus should underpin the price of iron ore, we do however, see the global economic recessionary fears providing the cap so do not expect wild price rises in the near and medium term.


The aluminium market is focused almost squarely on the constraints that the higher energy prices are having on production. Alcoa Corporation announced recently that it would be reducing production by 1/3 at a smelter owned by the company in Norway as energy prices surge. Aluminium has often been referred to as energy in the form of metal given the amount of energy needed to create it. It is worth mentioning that it takes about 14 megawatt hours of power to produce 1 tonne of aluminium. This is enough to power the average UK home for more than 3 years. Thus, it is not surprising to see the production of metal in the EU falling by about 50% within the past year.

This is expected to accelerate further over the winter months which in turn is likely to keep inventory levels pressured.

Our view: The market remains subdued with the benchmark holding below the $2500.00/tonne psychological level. Investors will be keeping a close eye both on the developments in the energy markets in the EU, as well as China, where Beijing is battling to contain outbreaks of the COVID-19 virus leading to lockdown and in turn demand fears.


Concerns surrounding global economic growth remain the major macro theme driving the price of copper currently. Better risk on trading conditions coupled with a weaker dollar allowed the 3m benchmark LME contract to climb north of $8000.00/tonne during the month of August, however, renewed thoughts of aggressive tightening by the Fed gave rise to a stronger dollar during the last week and thus copper gave back some of the gains.

Our view: The benchmark 3m LME contract has tested the $7000.00/tonne level and failed to break below suggesting a line in the sand to the downside is evident at this level. Equally the topside seems somewhat stretched on levels approaching $8200.00/tonne in the short term.