Economists have long argued gold is a safe haven. But in recent days gold has begun to decline while coal, particularly coking coal, has held firm.

Coking coal futures on the Singapore exchange are sitting on a 17.8 per cent gain in 2020. Meanwhile, spot gold’s 2020 performance has just entered negative territory.

Coking coal is used to make steel, while thermal coal is mainly used in power plants.

But even thermal coal has been looking up. The weekly price index for coking coal at the Newcastle Port is virtually unchanged from what it was at the end of 2019.


Coronavirus part of the answer

So why has this commodity held its ground when others have declined?

“The coronavirus itself is part of the answer,” Thomson Reuters economist Clyde Russell explained.

The border shut downs and economic retreats have led to supply issues. The most notable border shutdown was Mongolia’s. This cut off up to half of China’s coking coal supplies.

But now demand is ramping up as China gradually returns to normal and the border has reopened. Also, hopes remain that Beijing will boost stimulus measures already announced.

Another notable supply hit occurred due to seasonal wet weather in Queensland. The Sunshine State supplies more than half the total global volume of coking coal exports.

As for thermal coal, Russell argued import demand held strong throughout the crisis. Even though the crisis is easing in China, imports are still competitive.

“With China’s mines returning to normal, there may be an easing in demand for imported cargoes, but the imports are still competitive with domestic prices, meaning traders have a profit incentive to buy from top thermal coal exporter Indonesia and number two Australia,” he said.

“Perhaps coking and thermal coal, as well as iron ore, provide an optimistic note that commodity prices can recover once the coronavirus is contained.”

READ MORE: Coking coal, thermal coal are polar opposites in 2020