JOHANNESBURG -
Listed gold stocks reaffirmed their status as the leading equities recovery sector in global stock markets after the Federal Reserve, the US central bank, announced an interest rates cut on Tuesday, establishing a target range for the federal funds rate of 0% to 0.25%, the lowest ever known.
The cuts in US interest rates are among the latest further steps taken by governments, and monetary and treasury officials, around the world, to further stem damage from haemorrhaged credit markets and also stimulate economic activity as recessionary conditions increasingly take a grip across the world economy. A weaker dollar invariably stimulates dollar commodity prices, often expressed as a so-called "inverse correlation" relationship.
The dollar index (the weighted geometric mean of the dollar's value against a basket comprising the euro, yen, pound sterling, Canadian dollar, Swedish krone and Swiss franc) moved to 78.7 points on Wednesday, its lowest level since 29 September. The trade weighted dollar index, which includes a bigger collection of currencies than the US dollar index, has similarly moved to multi month lows.
While commodity prices in general have been savaged, with crude oil prices now down by around 60% from record highs close to USD 150 a barrel on 15 July, among the major commodities followed by investors, gold bullion has fallen the least in percentage terms. On Wednesday the metal was changing hands at around USD 880 an ounce, some 15% below record highs of just over USD 1,000 an ounce seen in March this year, and the highest since 8 October. Dollar silver bullion prices have also recovered well in the past few months, but remain 46% below highs recorded in March this year,
Measured over the past 12 months, the majority of commodities continue to trade close to low points. In contrast with gold and silver, platinum group metal (PGM) prices remain in the doldrums, with palladium trading around 70% below highs, and platinum 62% down. Price action for PGMs is closely linked to developments in the auto industry, which uses PGMs in exhaust catalysts.
Base metal prices, which also depend heavily on changes in industrial activity, remain squarely in bombed out territory. The base metals are currently changing hands at prices not seen for years, and, in the case of nickel, for more than five years. Announcements by mining companies of varying degrees of cut backs, curtailments, capital expenditure freezes, stoppages, and so on are now part of the daily routine, but the flow through into positively impacting global supply-demand dynamics is yet to materialize.
In the meantime, investors continue to show keen appetites for mining stocks; first, as a leading recovery sector, and second, for the choicest names within those sectors. Where the MSCI Barra dollar index for global equities has now lifted 21% off its low points, the world's 100 most valuable mining stocks have so far recorded a 62% lift, or bounce from the bottom, seen three months ago.
