Any UK Miners to Benefit from Gold's 7% YTD Gain?

Last year, higher commodity prices allowed miners to reward their shareholders. With gold up more than 7% year-to-date, will that pattern continue through 2023?

Setting the Stage

While high inflation has traditionally supported demand for safe-haven gold because it's the most liquid asset, most commodities offer a similar advantage against inflation due to their intrinsic value. Industrial metals, for example, are constantly needed as factories need them to operate. This means there is a constant demand to help boost prices, and when economic conditions are good, demand for commodities can get this extra push.

In the current global economic environment of high but falling inflation, copper might be among the more interesting takes as investors bet on electrification. But the need for transmission infrastructure, including transmission towers - the sheathing for the copper wires - and electric motors,  brings a less glamorous metal into focus: Iron ore. Steel is one of the most commonly used iron ore alloys used in the world, and demand is expected to grow at an annual rate of 3% over the next seven years.

Diversity is Key 

As demand for commonly used iron ores, such as steel and copper, grows along with soaring demand for electric vehicles (EVs), not only will there be more need for electronics but also batteries, which use an abundance of rare earth metals. The only competitor to battery electric vehicles (BEVs) is hydrogen-powered fuel cell vehicles (FCEVs), which have recently gained much traction in Europe. Platinum, yet another metal, is one of the key components of fuel cells. 

Anglo American's diverse portfolio of iron ore and metallurgical coal, which are used to make steel, and strong sales in platinum group metals (PMGs) and copper, puts the company in a favourable position to take advantage of future electrification demand. It recently put into operation a new mine in Peru and could produce up to 350,000 tonnes of copper by the end of the year. An additional increase in production could be seen in Chile starting in 2025 when a desalination plant comes online.

Source: https://otp.tools.investis.com/clients/uk/anglo_american_group1/rns/regulatory-story.aspx?cid=49&newsid=1669969

Anglo American in H&S

Despite gold's uprise, UK's Anglo American has been under pressure since the Jan 18 peak of 3700 it is down some 20% year-to-date. However, further declines could be narrow as the prices approach the golden pocket of the 2655-4290 leg at 2265. It is typical for head-and-shoulders to complete at the golden ratio and continue to the predominant trend direction, but not so rare to complete deeper either, with the 2k handle also in focus.

Below the 50% Fibonacci at 2655, prices will likely remain under pressure. But the chances of reversing higher following the completion of the H&S pattern will increase if the low of 2350 is taken out. Recapturing 3k will be one of the first major signs of reversal prior to the right-shoulder peak.

Source: Spreadex / Anglo American

Key Takeaways

Despite gold's 7% YTD gain, UK's Anglo American has been experiencing a decline and is down 20% in comparison. However, the company is well positioned to capitalise on growing demand of electrification trends with its diverse portfolio of iron ore and metallurgical coal, platinum group metals (PGMs), and copper. Prices may start to reverse if the low of 2350 is taken out. If 3k is recaptured, it will be a major sign of reversal prior to the right-shoulder peak.