• Bloomberg likes the look of gold heading into 2023
  • Vale dials back iron ore production plans in boost to iron ore miners
  • Lithium’s grim reaper Goldman Sachs launches recommendations, investors squirm

Is 2023 going to be a case of what goes up must come down?

That’s certainly how Bloomberg Intelligence feels as this year’s energy-led run in commodity prices played a big role in fuelling a rate hike cycle taking the world by storm.

According to Bloomberg Intelligence senior macro strategist Mike McGlone, the Bloomberg Commodity Index peaked around 40% in June, with a downward trend through the second half knocking it back to 20% on November 30.

Runs like this — the index peaked at 70% above its 60-month moving average in the first half — have never occurred without an ensuing US recession, McGlone says.

“If the lone major asset class to rally in 1H — commodities — doesn’t continue to revert lower along with the stock market, central-bank tightening may intensify as the world tilts toward recession,” he said.

“This is the state of play at the end of November, and we see greater potential for the Bloomberg Commodity Index, at the top of the 2022 scorecard, to trade places with the Bloomberg US Treasury 20+ Index near the bottom.

“Approaching the end of 2022, commodities appear as the sore thumb asset class, which if it doesn’t drop and help alleviate central bank rate hikes, the world is more likely to enter an enduring recession.”


A lighthouse in the storm: Beautiful glittering gold

But gold could yet be the lighthouse in the storm, having run cold for much of 2022.

Recently rallying from around US$1600/oz to yesterday’s US$1790/oz, gold is already starting to trend into more positive territory than it’s enjoyed for much of the past year.

“Spiking energy prices in 1H may have prompted the most central banks in history to tighten more than necessary, which could swing the other way in 2023, supporting gold,” McGlone says.

“Our view of the 2022 sector performance scoreboard at the end of November is that the remaining gains in energy and grains reflect a war premium that risks fading.

“Supply and demand elasticity will have ample time to respond a year from now, and it was the sharp rise in prices that added fuel to the global tack toward recession.”

He says gold is “ripe to shine in 2023, notably if the (US) Fed tilts toward easing”.

Gold was one of a number of classes along with critical minerals, copper and uranium our experts like heading into 2023.

READ: Merry Xmas: All the commodities our experts think could rule the roost in 2023 … oh, and 24 stock picks


Vale admits defeat in bid to boost iron ore tonnes

Vale, which spooked the iron ore market with long held plans to ramp up capacity to more than 400Mtpa, has admitted defeat in its efforts to return to the top of the iron ore totem pole until at least 2026.

The Brazilian iron ore giant was the world’s largest exporter before a production drop resulting from the Brumadinho dam disaster in early 2019.

It told analysts and investors in New York overnight a new value over volume approach would see guidance set at 310-320Mt in 2023, the same as 2022, with a target range of 340-360Mt by 2026 and 360Mt+ from 2030.

The company’s CFO Gustavo Pimenta said Vale would be generating much stronger margins at a lower production rate.
That will be positive news for Aussie iron ore producers, who have long feared additional tonnes from Brazil could oversupply the iron ore market.

It is another tailwind for prices, already up almost 40% over the past five weeks, as China moves to accelerate its emergence from Xi Jinping’s Covid-Zero policy.

Singapore futures were up slightly to US$106.50/t this morning, though the market was broadly down outside the gold sector, with materials off 0.86%.

Lithium plays fell after Goldman Sachs’ updated or initiated coverage on a swag bag of major stocks placing a buy recommendation on Allkem (ASX:AKE), neutral valuations on Pilbara Minerals (ASX:PLS), IGO (ASX:IGO) and Liontown (ASX:LTR) and a sell sign on Core Lithium (ASX:CXO).

Separately, GS analysts also think investors are over-egging the value they’re placing on Wesfarmers’ (ASX:WES) Mt Holland lithium project, due to begin spodumene production in 2024 and refined lithium hydroxide in 2025.


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