Diamond News Archives

Those worried that the positive momentum in the mining and metals sector is beginning to wane after two years of strong gains may find encouragement from a new survey by private capital tracker Preqin.

Fundraising by unlisted funds for investment in mining and metals was a non-starter last year. A single private capital fund closed last year after rustling up all of $24 million.

The total included $5.1 billion of capital raised by diversified natural resource closed-end funds, which may allocate a small portion to mining, but overall institutions shunned the industry.

Three months into 2018 and the environment couldn’t be any different.

Orion Mine Finance in February closed on the largest mining-focused fund in five years, and the second biggest fund dedicated to the sector in history. The New York-based firm closed on its Fund II after securing $2.1 billion including a co-investment vehicle. That brings total funds raised by Orion, over the last 10 years to more than $6 billion.

Orion is not wasting time finding targets for Fund II either and has already completed six deals with nearly $830 million committed to investment. The company also exited two large Fund II investments last year, selling a global portfolio of assets to Osisko Gold Royalties in a $1 billion transaction in July and a zinc mine in Macedonia that fetched a reported $400m in November last year.

Two other small mining funds closed during Q1 and, according to Preqin's 2018 Global Natural Resources report, a further 13 funds are currently in the market targeting the mining sector, seeking a combined $4.9 billion from so-called limited partners which include sovereign wealth...

Gold was a little choppy overnight in a range of $1326.90 - $1334.25, largely fading movements in the US dollar. It ticked up to its high of $1334.25 during early Asian hours as the DX hovered around 90.13, with the double top at $1335 providing resistance.

The yellow metal softened later during Asian hours and early European time to its low of $1326.90 while the DX rose to 90.28 as markets reacted to Trump’s tweet Sunday that China could remove its trade barriers and suggested that taxes will be reciprocal and a deal will be made on intellectual property along with Treasury Secretary Mnuchin saying he doesn’t expect a trade war between the US and China – largely walking back his comments saying it was possible on Friday.

Global equities advanced on that news with the NIKKEI up 0.5%, the SCI +0.2%, European shares unchanged to +0.7%, and S&P futures were +0.8%.

However, a couple of hours before the NY open, another Trump tweet regarding unfair auto trade between the US and China knocked S&P futures from its high, and pressed the DX down to 90.

Gold responded positively, and bounced back to $1333. Some geopolitical developments were largely offsetting, with the destabilizing factor of a Syrian chemical attack were mitigated by reports that North Korea told the US it is prepared to discuss denuclearization when Trump meets Kim Jong Un next month.

After the NY open, S&P futures continued to slide (2614), and the US 10-year bond yield pulled back from 2.801% to 2.786%.

The DX also dipped further, and took out support at 90 to 89.84. Strength in the euro ($1.2270 - $1.2325) from some comments by Draghi (slide in equities has not materially impacted euro zone financial conditions) weighed...

A breakdown in the relationship between dollar weakness and Asian central bank intervention poses a risk to Treasuries, stocks and all risky assets, according to Deutsche Bank AG.

Attempts by the Trump administration to clamp down on currency manipulation have limited the ability of central banks across the region to buy U.S. assets when the dollar weakens, and dampen the appreciation of their currencies, strategist Alan Ruskin write in a note Friday. These purchases have historically limited the greenback’s downside and acted as a “put” on Treasury market weakness, he wrote.

Such central bank puts are usually associated with successive Federal Reserve chairs willing to support the wider market with loose monetary policy. While such puts have been a continuous focus for investors, markets now risk overlooking other sources of central bank support that may be slipping as the U.S.’s “synergistic relationship with China,” comes to an end, according to Ruskin.

“It is not a coincidence that in this recent period of dollar weakness, Treasury bonds were also soft,” he said. “Historically, foreign central banks of sizable current account surplus countries like China, Taiwan, Korea and Thailand would have been intervening.”

According to the strategist, the “end of Chimerica” means American current account deficits are no longer financed to the same degree by Asian central bank reserve recycling of corresponding trade surpluses. That reduction in demand for Treasuries from foreign reserves is coming at a time when U.S. fiscal supply is set to increase dramatically, putting extra pressure on the country’s bond market.

China is the largest holder of U.S. Treasuries with about $1.2 trillion of the securities, according to the latest U.S. government data. However, its relative share of the market is near its lowest since 2005,...

Thirty Years is a long time. It’s nearly a career for some people. So you have financial advisors who have been in the business since they graduated from college, are now in their 50s, and have never operated in a genuinely inflationary environment.

What happens the same rotation trade you always make for your clients when stocks crash, simply rolling over into bonds? A lot of advisors are going to get a “crash” course in the wisdom of precious metals investing during inflationary periods.

We've been living in a disinflationary environment for last 30 years and, overall, this has been good for companies and the stock market, says Charles Gave at Gavekal Research. This may be about to change, however, and the implications for investors are quite profound if so.

If we assume we are moving into an inflationary period, the direction of bonds, long bonds and stocks have a positive correlation. This means that if the bond market goes down, the stock market goes down, Gave stated, and if the bond market goes up, the stock market goes up.

This is the inverse of what we’ve seen over the last 30 years, where we had a negative correlation between long-dated bond and the stock market, Gave added, which is typical of a deflationary or disinflationary period.

“Most money today is managed with the idea that if the stock market goes down, the bond market will go up, and that is not what happens in an inflationary period,” Gave noted. “I'm trying to warn our clients to be careful that the diversification tool that they’ve been using for 30 years may be about to stop working.”

ORIGINAL SOURCE: Inflation Paradigm Shift May Be Underway, Says Charles Gave^[1] at...