1 00:00:05,960 --> 00:00:08,080 Speaker 1: Welcome to Fear and Greed Q and A where we 2 00:00:08,160 --> 00:00:12,120 Speaker 1: ask and answer questions about business, investing, economics and politics 3 00:00:12,200 --> 00:00:15,320 Speaker 1: and more. I'm Sean Ael Matt and today just how 4 00:00:15,400 --> 00:00:17,919 Speaker 1: far can the gold price go? And in a week 5 00:00:17,960 --> 00:00:22,080 Speaker 1: where we've seen gold, iron ore, uranium, copper and lithium 6 00:00:22,239 --> 00:00:25,599 Speaker 1: or climb, what's the outlook for commodities? The vect is 7 00:00:25,680 --> 00:00:29,920 Speaker 1: Head of Commodities and Sustainability Research at Commonwealth Bank VEC. 8 00:00:30,000 --> 00:00:31,600 Speaker 1: Welcome back to Fear and Greed Q and A. 9 00:00:32,000 --> 00:00:33,639 Speaker 2: No, thank you, it's a pleasure being here. 10 00:00:34,080 --> 00:00:37,159 Speaker 1: Let's start with gold. How far can it go? 11 00:00:37,800 --> 00:00:40,520 Speaker 2: So, look, this has been a commodity that we've talked 12 00:00:40,520 --> 00:00:43,720 Speaker 2: about previously and whenever we've come out with a forecast 13 00:00:43,840 --> 00:00:47,080 Speaker 2: we think it's reasonable and whenever we put it out there, 14 00:00:47,120 --> 00:00:49,840 Speaker 2: we just see with upside risk. And the reason being 15 00:00:50,000 --> 00:00:53,599 Speaker 2: is that it has been very difficult to find a 16 00:00:53,680 --> 00:00:57,720 Speaker 2: reason for gold to sell off materially, and it's almost 17 00:00:57,760 --> 00:01:00,400 Speaker 2: like it finds the good reasons to rally, and whenever 18 00:01:00,440 --> 00:01:03,600 Speaker 2: you have typical negative reasons, like say a stronger US dollar, 19 00:01:03,640 --> 00:01:07,120 Speaker 2: which is typically weight on gold, it has just taken 20 00:01:07,120 --> 00:01:09,320 Speaker 2: it in its stride and just stayed flat in response, 21 00:01:09,360 --> 00:01:12,840 Speaker 2: to something like that. So this commodity has been very 22 00:01:12,840 --> 00:01:15,120 Speaker 2: strong to date. There are key structural drivers that we 23 00:01:15,200 --> 00:01:18,440 Speaker 2: think are really elevating the price right now. But we 24 00:01:18,520 --> 00:01:20,920 Speaker 2: think this has more to run. And our call right 25 00:01:20,920 --> 00:01:24,080 Speaker 2: now is about four thousand dollars an ounce by the 26 00:01:24,120 --> 00:01:25,240 Speaker 2: second quarter next year. 27 00:01:26,000 --> 00:01:30,360 Speaker 1: Okay, So it's structural. Is it part cyclical as well? 28 00:01:30,440 --> 00:01:35,520 Speaker 1: Because four thousand dollars US dollars announce I mean it's 29 00:01:35,640 --> 00:01:38,440 Speaker 1: twice what people thought was crazy just a couple of 30 00:01:38,520 --> 00:01:42,840 Speaker 1: years ago in a sense, So is it structural cyclical? Yeah? 31 00:01:42,880 --> 00:01:45,360 Speaker 2: Look, I think both are playing a part right now. 32 00:01:46,240 --> 00:01:49,320 Speaker 2: If we looked at purely the cyclical factors, it's certainly 33 00:01:49,320 --> 00:01:52,280 Speaker 2: going to be this story that US dollar weakness and 34 00:01:52,400 --> 00:01:56,080 Speaker 2: the fact that the US Federal Reserve has started cutting rates. 35 00:01:56,480 --> 00:01:59,680 Speaker 2: I think both those factors historically have been quite supportive 36 00:01:59,720 --> 00:02:03,000 Speaker 2: of God. And it does follow that cyclical element and 37 00:02:03,080 --> 00:02:06,240 Speaker 2: this rate cutting cycle, given we already started and that 38 00:02:06,400 --> 00:02:09,280 Speaker 2: you know we're baking in another seventy five basis points 39 00:02:09,280 --> 00:02:13,280 Speaker 2: of cuts by the FOMC by March next year, you 40 00:02:13,320 --> 00:02:15,560 Speaker 2: know that is all going to be quite supportive because 41 00:02:15,960 --> 00:02:19,400 Speaker 2: relative to gold, you know, when we think about say, 42 00:02:19,480 --> 00:02:22,720 Speaker 2: US interest bearing assets, they look less attractive because they 43 00:02:22,760 --> 00:02:25,400 Speaker 2: yields are lower, and so gold look looks better. And 44 00:02:25,440 --> 00:02:28,400 Speaker 2: as a result of that asset class preference, that's really 45 00:02:28,440 --> 00:02:32,519 Speaker 2: been what is supportive of gold Cyclically. Similarly, a weaker 46 00:02:32,600 --> 00:02:35,200 Speaker 2: US dollar, this has been quite strong in terms of 47 00:02:35,200 --> 00:02:38,200 Speaker 2: that negative relationship with gold. And the basis for this 48 00:02:38,240 --> 00:02:41,959 Speaker 2: is simply a weaker US dollar makes gold more attractive 49 00:02:42,000 --> 00:02:45,160 Speaker 2: to non US consumers and that relationship has been quite 50 00:02:45,160 --> 00:02:47,840 Speaker 2: strong over the last twelve months. So cyclically that would 51 00:02:47,840 --> 00:02:49,880 Speaker 2: be the key ones to watch. And certainly now that's 52 00:02:49,880 --> 00:02:52,880 Speaker 2: a tailwind, But the question is, you know, on top 53 00:02:52,919 --> 00:02:55,120 Speaker 2: of that, what are the structural reasons, because as you said, 54 00:02:55,200 --> 00:02:59,000 Speaker 2: four thousand is is unheard of territory. 55 00:02:59,120 --> 00:03:01,680 Speaker 1: So what are structual raisons? Then I'm going to keep 56 00:03:01,720 --> 00:03:03,880 Speaker 1: pushing you on the goal to evivic look. 57 00:03:03,800 --> 00:03:07,240 Speaker 2: Absolutely, Look, the two that have really captured our attention, 58 00:03:07,320 --> 00:03:10,440 Speaker 2: and one we've talked about previously is the fact that 59 00:03:10,520 --> 00:03:14,440 Speaker 2: we have seen a reordering of safe haven assets, particularly 60 00:03:14,520 --> 00:03:16,760 Speaker 2: this year. So if we go back to major equity 61 00:03:16,760 --> 00:03:19,480 Speaker 2: market sells selloffs in the US, you know, you can 62 00:03:19,560 --> 00:03:21,560 Speaker 2: go back to the global financial crisis in two thousand 63 00:03:21,560 --> 00:03:23,799 Speaker 2: and eight, you can go to the pandemic in twenty twenty, 64 00:03:24,160 --> 00:03:26,240 Speaker 2: and you can look at what happened in April when 65 00:03:26,280 --> 00:03:31,360 Speaker 2: we saw Trump's Liberation Day tariffs. Now in those those 66 00:03:31,440 --> 00:03:34,960 Speaker 2: last two, so in the GFC and the pandemic, usually 67 00:03:34,960 --> 00:03:37,160 Speaker 2: where gold sits in the pecking order of safe haven 68 00:03:37,200 --> 00:03:40,800 Speaker 2: demand is usually behind US dollar and US treasuries. What 69 00:03:40,880 --> 00:03:45,320 Speaker 2: we've seen this year is that it has certainly reordered 70 00:03:45,360 --> 00:03:48,240 Speaker 2: to number one, and gold has actually outperformed your other 71 00:03:48,320 --> 00:03:51,520 Speaker 2: safe haven assets that typically do really well when there's 72 00:03:51,520 --> 00:03:54,720 Speaker 2: equity market selloffs. And it tells us that Trump's policies 73 00:03:54,720 --> 00:04:00,080 Speaker 2: have actually caused this safe haven demand asset list to change. 74 00:04:00,200 --> 00:04:02,400 Speaker 2: And you know it's not just gold. I'd say silver 75 00:04:02,440 --> 00:04:05,320 Speaker 2: has really benefited in this as well. But this shift 76 00:04:05,360 --> 00:04:08,280 Speaker 2: in thinking about gold is it means that every time 77 00:04:08,320 --> 00:04:11,040 Speaker 2: we have a safe haven demand event, a big risk, 78 00:04:11,320 --> 00:04:14,560 Speaker 2: a big question about fed independence, we see more flow 79 00:04:14,600 --> 00:04:16,880 Speaker 2: towards gold than we would have seen prior to twenty 80 00:04:16,920 --> 00:04:19,719 Speaker 2: twenty five. And that's one of the big structural reasons. 81 00:04:20,279 --> 00:04:23,360 Speaker 2: The other big one, which has been there for some time, 82 00:04:23,560 --> 00:04:25,880 Speaker 2: or we say some time, but i'd say last couple 83 00:04:25,880 --> 00:04:30,159 Speaker 2: of years, has been post the Ukraine War. We have 84 00:04:30,279 --> 00:04:34,000 Speaker 2: seen central banks, particularly from emerging markets, look to gold 85 00:04:34,360 --> 00:04:37,280 Speaker 2: as part of their reserve mix. Now this is simply 86 00:04:37,320 --> 00:04:41,000 Speaker 2: because when we saw the Ukraine War happen, the US 87 00:04:41,120 --> 00:04:46,080 Speaker 2: really sanctioned the US reserves held by Russia, and so 88 00:04:46,160 --> 00:04:48,760 Speaker 2: these emerging markets that were like, okay, let's buy a 89 00:04:48,800 --> 00:04:50,880 Speaker 2: lot more gold, and this is how we're going to 90 00:04:50,920 --> 00:04:53,360 Speaker 2: diversify our risks. So to put in a perspective, what 91 00:04:53,400 --> 00:04:57,240 Speaker 2: difference we're talking about. Prior to the Ukraine War, about 92 00:04:57,320 --> 00:05:00,279 Speaker 2: ten percent of gold demand was linked to central ban Thanks. 93 00:05:00,960 --> 00:05:03,920 Speaker 2: This has now jumped to about nearly twenty percent, if 94 00:05:03,960 --> 00:05:06,120 Speaker 2: not slightly higher since that period. 95 00:05:06,520 --> 00:05:09,560 Speaker 1: Okay, so you mentioned silver there, so I will let 96 00:05:09,640 --> 00:05:11,960 Speaker 1: silver go, but let's jump onto a couple of commodities 97 00:05:12,000 --> 00:05:14,960 Speaker 1: cloth were more important, certainly frustrating producers. Iron Or of 98 00:05:15,000 --> 00:05:17,520 Speaker 1: course is the big one. It has a bit of 99 00:05:17,520 --> 00:05:20,320 Speaker 1: a pickup in price recently. Again it's the China story, 100 00:05:20,400 --> 00:05:22,839 Speaker 1: no doubt. But what is the outlook for iron ore? 101 00:05:23,760 --> 00:05:26,400 Speaker 2: So iron know has held up much better than we thought. 102 00:05:26,720 --> 00:05:28,760 Speaker 2: You're right now where barb one hundred and five dollars 103 00:05:28,839 --> 00:05:32,560 Speaker 2: a ton as we speak, and in terms of tracking 104 00:05:32,600 --> 00:05:34,800 Speaker 2: at these levels, you can see some of it is 105 00:05:34,960 --> 00:05:38,960 Speaker 2: based on blast floreness activity in China being stronger than expected, 106 00:05:38,960 --> 00:05:41,640 Speaker 2: and that's very seasonal. Like this was on the back 107 00:05:42,080 --> 00:05:45,279 Speaker 2: off activity being reduced because of the of the military parade, 108 00:05:45,279 --> 00:05:47,919 Speaker 2: and we saw a pickup. But the real question for 109 00:05:48,000 --> 00:05:52,279 Speaker 2: us is are these levels sustainable? And the one trend 110 00:05:52,279 --> 00:05:54,920 Speaker 2: that has quarter I which we think just doesn't fit 111 00:05:54,960 --> 00:05:57,760 Speaker 2: in terms of the puzzle pieces is China steel mill 112 00:05:57,839 --> 00:06:01,600 Speaker 2: margins have been heading south. It's now at negative levels 113 00:06:01,600 --> 00:06:04,400 Speaker 2: and it has turned even more negative in recent weeks. 114 00:06:04,800 --> 00:06:08,440 Speaker 2: And you know, this trend of steel mill margins turning 115 00:06:08,520 --> 00:06:11,640 Speaker 2: south and iron o prices heading up is very unusual. 116 00:06:12,040 --> 00:06:14,640 Speaker 2: You know, typically they go hand in hand and steel 117 00:06:14,640 --> 00:06:18,479 Speaker 2: margins that give good indication of where iron or prices go. Now, 118 00:06:18,560 --> 00:06:22,240 Speaker 2: it's not unprecedented. In twenty four week at the beginning 119 00:06:22,279 --> 00:06:24,880 Speaker 2: of that year, we saw something similar take place and 120 00:06:25,000 --> 00:06:27,640 Speaker 2: iron ore rose to about, you know, over one hundred 121 00:06:27,680 --> 00:06:30,520 Speaker 2: and forty dollars a ton, but steel mill margins hit 122 00:06:30,600 --> 00:06:33,360 Speaker 2: such a negative point when this was occurring that we 123 00:06:33,400 --> 00:06:36,080 Speaker 2: saw a quick snap back and irono prices fell to 124 00:06:36,120 --> 00:06:39,159 Speaker 2: one hundred by the end of that twenty twenty four 125 00:06:39,200 --> 00:06:42,200 Speaker 2: first quarter. So you know, we're looking at this very closely, 126 00:06:42,640 --> 00:06:45,680 Speaker 2: and it just the fundamentals don't add up. The only 127 00:06:45,720 --> 00:06:47,960 Speaker 2: way we can see prices stay at these levels is 128 00:06:48,000 --> 00:06:50,279 Speaker 2: if China commits to stimulus, and some of that would 129 00:06:50,320 --> 00:06:53,320 Speaker 2: be priced in. But overall, our thinking about this commodity 130 00:06:53,720 --> 00:06:56,279 Speaker 2: is it's all about China steel output plans and the 131 00:06:56,320 --> 00:06:58,640 Speaker 2: way we almost you know, look at it in terms 132 00:06:58,640 --> 00:07:01,320 Speaker 2: of what it means. If we see China steal output 133 00:07:01,360 --> 00:07:03,840 Speaker 2: fall one to two percent, we can argue hundred dollars 134 00:07:03,880 --> 00:07:06,800 Speaker 2: a ton. If it falls sixty seven percent, we can 135 00:07:06,920 --> 00:07:09,320 Speaker 2: argue ninety dollars a ton. If it falls ten percent, 136 00:07:09,320 --> 00:07:11,800 Speaker 2: you can argue eighty dollars a ton. Our viewer is 137 00:07:11,800 --> 00:07:14,680 Speaker 2: that we'll see something just north of two percent fall 138 00:07:14,720 --> 00:07:17,840 Speaker 2: in China steel production, all given by policy, and that 139 00:07:18,000 --> 00:07:20,200 Speaker 2: justifies something in that ninety five to one hundred dollars 140 00:07:20,200 --> 00:07:21,640 Speaker 2: a ton range by the end of this year. 141 00:07:22,520 --> 00:07:24,480 Speaker 1: Okay, I just we're sort of running out of time, 142 00:07:24,520 --> 00:07:27,760 Speaker 1: but quickly we want to ask about copper in particular. 143 00:07:28,520 --> 00:07:31,760 Speaker 1: We've seen a major merger between a couple of global 144 00:07:31,800 --> 00:07:34,520 Speaker 1: miners on the back of copper. We know BHP. Everyone 145 00:07:34,520 --> 00:07:38,040 Speaker 1: seems to want copper. Having said that its share price 146 00:07:38,040 --> 00:07:40,480 Speaker 1: wills come off in more recent times, but it just 147 00:07:40,520 --> 00:07:43,040 Speaker 1: doesn't seem to be you know, you read all the 148 00:07:43,080 --> 00:07:45,240 Speaker 1: news copper. There's not going to be enough about it, 149 00:07:45,880 --> 00:07:50,000 Speaker 1: enough of it, Electrification needs it, huge shortage to supply. 150 00:07:50,120 --> 00:07:52,840 Speaker 1: Yet the price it's high, but it's not like it's 151 00:07:52,840 --> 00:07:55,880 Speaker 1: surging or anything like that. I kind of to me, 152 00:07:55,920 --> 00:07:58,200 Speaker 1: it's almost a bit of a mismatch in terms of 153 00:07:58,280 --> 00:08:01,520 Speaker 1: all the talk about demand of copper and the price, 154 00:08:01,600 --> 00:08:03,600 Speaker 1: which albeit the price has risen. 155 00:08:04,360 --> 00:08:07,080 Speaker 2: Look, it's a great question, and you know, we've seen 156 00:08:07,120 --> 00:08:09,360 Speaker 2: copper rise above ten thousand dollars a time and then 157 00:08:09,400 --> 00:08:12,160 Speaker 2: come back down, and I think everyone's trying to almost 158 00:08:12,200 --> 00:08:14,520 Speaker 2: price in when is this copper shortfall going to be 159 00:08:14,560 --> 00:08:17,640 Speaker 2: reflected in pricing. The one thing I'd say about all 160 00:08:17,680 --> 00:08:20,080 Speaker 2: that is the short term picture is that we should 161 00:08:20,200 --> 00:08:22,680 Speaker 2: have enough copper over the next two to three years. 162 00:08:23,120 --> 00:08:26,040 Speaker 2: And it's that dynamic that makes it very complicated for 163 00:08:26,080 --> 00:08:29,160 Speaker 2: copper to price in short falls which may be expected 164 00:08:29,200 --> 00:08:32,600 Speaker 2: by twenty thirty and certainly by twenty thirty five. But 165 00:08:32,679 --> 00:08:36,520 Speaker 2: how does the market really price that when physically we're 166 00:08:36,520 --> 00:08:39,600 Speaker 2: not seeing those shortfalls really happen in the next two 167 00:08:39,640 --> 00:08:42,120 Speaker 2: to three years. And that's kind of the problem. You 168 00:08:42,200 --> 00:08:45,360 Speaker 2: have this short end of the curve, which is relatively balanced, 169 00:08:45,679 --> 00:08:48,080 Speaker 2: and then you have this shortfall expectation in the future. 170 00:08:48,160 --> 00:08:50,560 Speaker 2: And that's what the market really grapples with in terms 171 00:08:50,600 --> 00:08:56,040 Speaker 2: of price reaction. In terms of where the price momentum 172 00:08:56,040 --> 00:08:59,200 Speaker 2: has come from. Copper also benefits from a weaker US dollar. 173 00:08:59,760 --> 00:09:02,360 Speaker 2: It also benefits from the Fed Fund rate cuts. But 174 00:09:02,520 --> 00:09:05,560 Speaker 2: on the other side, I think supply disruptions have been 175 00:09:05,600 --> 00:09:08,679 Speaker 2: a lot larger than people expected. And that's been something 176 00:09:08,720 --> 00:09:11,040 Speaker 2: that you know, copper has historically all this faced about 177 00:09:11,040 --> 00:09:14,199 Speaker 2: five to six percent of supply has almost always been 178 00:09:14,200 --> 00:09:17,160 Speaker 2: disrupted over the last few years. The question is is 179 00:09:17,200 --> 00:09:20,840 Speaker 2: that accelerating with some of the more recent outages. And 180 00:09:21,520 --> 00:09:23,880 Speaker 2: the question here is even in the next five years, 181 00:09:23,920 --> 00:09:27,760 Speaker 2: it's that upstream copper supply that everyone is worried about. 182 00:09:27,840 --> 00:09:30,160 Speaker 2: That will we have enough? And I think at some 183 00:09:30,240 --> 00:09:32,240 Speaker 2: point that will bite, But the next two to three 184 00:09:32,320 --> 00:09:34,160 Speaker 2: years it's very hard to see when that will be 185 00:09:34,160 --> 00:09:35,080 Speaker 2: reflected in pricing. 186 00:09:35,640 --> 00:09:37,199 Speaker 1: Okay, and we are totally out of time, but I've 187 00:09:37,200 --> 00:09:40,120 Speaker 1: got to ask you about lithium. What's going on there? 188 00:09:40,600 --> 00:09:43,520 Speaker 2: So look, lithium, we saw in June with body you 189 00:09:43,559 --> 00:09:46,360 Speaker 2: mean hit those near the six hundreds, and that was 190 00:09:46,400 --> 00:09:48,760 Speaker 2: really a lot of margin pressure that we saw come 191 00:09:48,880 --> 00:09:51,280 Speaker 2: through the supply chain as we saw ev price war 192 00:09:51,280 --> 00:09:54,120 Speaker 2: was taken. But since the first of July, we've seen 193 00:09:54,160 --> 00:09:57,600 Speaker 2: this commodity rally, and it rallied initially because of all 194 00:09:57,640 --> 00:10:00,120 Speaker 2: the supply cuts and concerns coming out of China, and 195 00:10:00,160 --> 00:10:02,560 Speaker 2: that was more to do with illegal mining and more 196 00:10:02,600 --> 00:10:05,800 Speaker 2: scrutiny over licenses. Now as as some of those issues 197 00:10:05,840 --> 00:10:08,320 Speaker 2: have been resolved, those prices have come back down, but 198 00:10:08,400 --> 00:10:10,640 Speaker 2: we don't think we'll revisit the lows that we saw 199 00:10:10,920 --> 00:10:14,359 Speaker 2: in June. In mid June, we think we've passed the bottom. 200 00:10:14,480 --> 00:10:16,360 Speaker 2: But to think that this commodity is in a bull 201 00:10:16,440 --> 00:10:19,720 Speaker 2: cycle run, we're saying, look, just watch out. There's a 202 00:10:19,760 --> 00:10:22,079 Speaker 2: lot of leating capacity in this market that can come 203 00:10:22,120 --> 00:10:26,040 Speaker 2: online if prices respond. Yes, we may be past the bottom, 204 00:10:26,360 --> 00:10:28,000 Speaker 2: but this is going to be a tough ride for 205 00:10:28,440 --> 00:10:31,320 Speaker 2: lithium for the next few years, just given that there's 206 00:10:31,320 --> 00:10:33,280 Speaker 2: a massive supply overhang you have to work through. 207 00:10:33,800 --> 00:10:35,520 Speaker 1: Vic, thanks for talking to Fear and Greed. 208 00:10:35,400 --> 00:10:36,280 Speaker 2: My pleasure. Thank you. 209 00:10:36,400 --> 00:10:40,000 Speaker 1: That was Vector, head of Commodities and Sustainability Research at 210 00:10:40,080 --> 00:10:42,480 Speaker 1: Commonwealth Bank. If you've got something you'd like to know, 211 00:10:42,600 --> 00:10:45,840 Speaker 1: then send through your question on LinkedIn, Instagram, Facebook, or 212 00:10:45,840 --> 00:10:48,280 Speaker 1: at fearinggreed dot com. Today you I'm Seant and this 213 00:10:48,440 --> 00:10:51,439 Speaker 1: is Fear and Greed a Q and DA