Monsters of Rock: China's on pause but gold remains mining's bright spark

China has avoided gold purchases for three straight months, but prices are still on a tear
Goldies again lead the market, with West African hitting high grades at Kiaka
Copper miners smile as prices rise despite contradictory market signals

China paused gold purchases by the People’s Bank for the third straight month in July, but the precious metal remains in high demand with prices pushing again through $3750/oz Australian and US$2460/oz overnight.

It’s another win for gold miners, who again led the bourse’s materials players today, ameliorating losses in battery metals.

Elon Musk exposed the Tesla electric vehicle brand to a bizarre interview with Republican presidential nominee Donald Trump today. Not much in the way of EV talk, but markets often work in mysterious ways.

Speaking of mysterious, China’s gold purchasing was the steam for the rise in gold demand in recent years, but has paused in the past three months amid a run in prices to record levels.

Why are they still there?

ING commodities strategist Ewa Manthey suggests we’ll see gold at a peak in the fourth quarter due to a cocktail of war and hopes for US Fed rate cuts.

A CPI on Wednesday will be instructive.

“We believe that geopolitics will remain one of the key factors driving gold prices,” she said.

“The war in Ukraine and the Middle East and tensions between the US and China suggest that safe-haven demand will continue to support gold prices in the short to medium term.

“The US presidential election in November and the long-awaited US Fed rate cut will also continue to add to gold’s upward momentum through to the end of the year, in our view. Central banks are also expected to keep adding to their holdings, which should offer support.

“We see gold averaging $2,380 in the third quarter and prices peaking in the fourth quarter at $2,450/oz, resulting in an annual average of $2,301/oz.”

ING thinks we’ll see a 50bps cut in September, with a string of 25bps cuts over the next year to bring rates down from 5.25-5.5% to 3.5% by next summer, Manthey said.

Copper runs

Among the top gold producers today West African Resources (ASX:WAF) was a standout after toasting high-grade results from its Kiaka South deposit, part of its next Burkina Faso mine due to enter operation in 2o25.

The company has its sights on growing from the single mine 200,000ozpa producer at the Sanbrado deposit to a 400,000ozpa operator wedged firmly in the global mid-tier with the Kiaka development.

The hits included 22m at 7.6g/t gold, 26m at 5.8g/t gold and 26m at 5.6g/t gold, the last two ending in mineralisation.

WAF thinks the Kiaka South deposits, which contains high grade feed 700m from the main Kiaka pit, will deliver high margin ounces in the first 18 months of the production schedule.

Copper stocks were also in the good books, as LME futures peeked above US$9000/t again.

All of the big pure plays, Sandfire Resources (ASX:SFR), Metals Acquisition (ASX:MAC) and 29Metals (ASX:29M), were in the green.

It comes as supply continues to disappoint from the major producers, notably Chile’s Codelco.

It has found the going tough to expand and develop both existing and new orebodies, a stark reminder of the poor health of the global asset pool given its status as a State-owned entity should give it the inside track on approvals, labour and more in the South American nation.

“Recent data from the Chilean copper commission Cochilco shows that Codelco’s total copper production fell 7.9% month-on-month (down 14.5% year-on-year) to 102.8kt in June,” ING noted.

“Cumulatively, output fell by 8.1% YoY to 628.4kt over the first half of the year, primarily due to delays in structural projects. However, BHP’s Escondida copper mine reported gains of 2.3% YoY (+7.4% MoM) to 114kt last month, while year-to-date production rose by 10% YoY to 614.4kt in the first half of the year.

“Meanwhile, output at the Collahuasi mine was slightly higher in both comparisons, while Los Pelambres was little changed in June.”

At the same time, bull bets on copper through the US COMEX market fell to a five month low last week, though ING noted gold and silver longs were also down.