Articles in Category: Macroeconomics

You cannot turn on the TV or read a news feed without hearing dire warnings of surging inflation.

The U.S. Consumer Price Index rose 6.8% year on year in November, the fastest pace since 1982. Meanwhile, while Eurozone inflation climbed to a record 4.9%.

More than three-quarters of countries analyzed by Pew Research had higher inflation in the third quarter of 2021 than in the same period in 2019, the Financial Times reported.

Stop obsessing about the actual forecasted aluminum price. It’s more important to spot the trend

Inflation worries push investors toward government bonds

inflation definition highlighted

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Not surprisingly, investors are positioning themselves for higher inflation. Investors are buying into assets that may profit from or at least hedge them against rising inflation.

Typically, that would be hard assets like gold. However, a leading gold ETF has seen outflows of more than $10 billion so far this month. Investors appear to have preferred inflation-linked paper assets, such as inflation-protected government bonds, commodity funds and real estate investment trusts.

The Financial Times reports this year a record $66.8 billion has flowed into funds holding Treasury Inflation-Protected Securities, U.S. government bonds that are indexed to inflation.

In Britain, demand is also robust. The sale last month of £1.1 billion in inflation-adjusted government gilts maturing in 2073 drew the lowest yield — and highest price — at auction on record.

What about commodities?

So why are we not seeing more interest in commodities?

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The Construction Monthly Metals Index (MMI) fell by 6.1% for this month’s reading, as U.S. construction spending rose by 7.5% year over year in the first 10 months of the year.

December 2021 Construction MMI chart

MetalMiner is hosting its final webinar of the calendar year tomorrow — Wednesday, Dec. 8 — during which the MetalMiner team will overview price predictions for 2022. To attend, visit the MetalMiner Events page

US construction spending up in October

housing starts

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U.S. construction spending came in at a seasonally adjusted annual rate of $1,598 billion in October, up 0.2% from September, according to the Census Bureau.

Furthermore, the October spending rate increased by 8.9% compared with October 2020 spending.

Through the first 10 months of the year, U.S. construction spending totaled $1,323.1 billion, or up 7.5% year over year.

Private construction spending in October reached a seasonally adjusted annual rate of $1,245.0 billion, or down 0.2% from September. Within private construction, residential construction reached a rate of $774.7 billion in October, down 0.5% from September. Nonresidential construction rose 0.2% to $470.3 billion.

Meanwhile, public construction spending rose 1.8% to a rate of $353.0 billion. Educational construction spending rose 0.2% to $82.2 billion. Highway construction spending rose 2.4% to $102.5 billion.

Nucor to build third rebar micro mill

As we reported yesterday, Nucor Corporation on Monday announced plans to build its third rebar micro mill.

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This morning in metals news: U.S. GDP increased by 2.1% in Q3 2021, the Bureau of Economic Analysis reported in its latest estimate; new home sales increased in October; and, lastly, average U.S. gasoline prices are higher this Thanksgiving holiday than any since 2012.

Each month, MetalMiner hosts a webinar on a specific metals topic. The final webinar of the year is scheduled for Wednesday, Dec. 8, during which the MetalMiner team will overview predictions for 2022. For more information and to sign up for the webinar, visit the MetalMiner events page

US GDP up 2.1%

US GDP

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According to the Bureau of Economic Analysis today, U.S. real GDP increased at an annual rate of 2.1% in Q3. The figure is the bureau’s second estimate for Q3 GDP.

U.S. GDP increased by 6.7% in Q2 2021.

“The increase in third quarter GDP reflected the continued economic impact of the COVID-19 pandemic,” the BEA reported. “A resurgence of COVID-19 cases resulted in new restrictions and delays in the reopening of establishments in some parts of the country. Government assistance payments in the form of forgivable loans to businesses, grants to state and local governments, and social benefits to households all decreased.”

New home sales tick up in October

New home sales in the U.S. increased by 0.4% in October from the previous month, the Census Bureau reported.

Sales reached a seasonally adjusted annual rate of 745,000 in October.

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Inflation is currently a hot topic on Wall Street and in Washington. For many, it’s a much more immediate issue than other major issues, like the impact of climate change.

A recent Financial Times post in the paper’s Trade Secrets newsletter posed a somewhat controversial but not inappropriate question: could removing tariffs be the answer to lowering inflation?

MetalMiner has launched a full suite of precious metals as part of the MetalMiner Insights platform. This includes a complete suite of catalytic converter precious metals, which are particularly useful for automotive end-use applications.

Inflation and tariffs

inflation definition highlighted

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Tariffs are certainly in the spotlight, the Financial Times suggests.

U.S. Trade Representative Katherine Tai was apparently asked by reporters in a roundtable last week if removing the Trump-era tariffs on Chinese imports was now under consideration. The U.S. Consumer Price Index showed a 6.2% gain in October from the previous year, its fastest increase since 1990. Treasury Secretary Janet Yellen, the former Federal Reserve chair, acknowledged this week that removing the tariffs would provide a one-off supply chain cost reduction that would “make some difference.”

Inflation is clearly a concern. However, why would you conflate one issue – protecting domestic intermediate product manufacturing – with the separate issue of wider economic inflation?

Then and now

There is little evidence that the original Trump tariffs resulted in inflation in the wider economy. Certainly, within the metals supply chain costs were passed directly down the line. Costs filtered down from either importers or by domestic mills opportunistically raising prices to the level of imports. But the impact proved relatively minor on the cost of a finished washing machine or an earth mover, the Financial Times reported, citing research results.

In our currently much more supply chain constrained and inflationary economic environment, removing the tariffs would result in a one-off modest drop in prices for many goods. The post makes an observation that savings rates remain high. The public has not spent all the savings accumulated during the lockdowns. Furthermore, the inflationary global logistics constraints abated. As such, demand in a constrained environment is likely to persist for some time.

In short, inflation isn’t going away any time soon.

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In the first part of this series, we discussed monetary inflation, the history of gold as a store of value and how digital assets, like Bitcoin, may be the next big thing in the technology of money.

Bitcoin and gold

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The narrative of gold being the premier store-of-value asset has captivated like-minded investors for centuries. In this follow-up piece, we will compare gold and Bitcoin across the first three properties of sound money: portability, uniformity and divisibility.

MetalMiner has launched a full suite of precious metals as part of the MetalMiner Insights platform. This includes a complete suite of catalytic converter precious metals, which are particularly useful for automotive end-use applications.

Portability

An important part of any money is one’s ability to transport it across space and time. What good is any form of money that you can’t bring with you?

The portability of gold largely depends on the quantity one owns. For example, a few gold coins are extremely portable and can be stored in a wallet or a pocket. However, a larger investor will have more trouble moving large quantities.

Gold is currently trading at approximately $1,800/oz. An investment of $180,000 in gold weighs in at around 6.25 pounds. Meanwhile, an investment of $1.8 million weighs 62.5 pounds (and so on). A wealthier individual might not care as much about transportation costs. However, the larger the gold investment is, the more difficult and costly it will be to send across the world.

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This morning in metals news: U.S. steel capacity utilization dipped to 84.3% last week; the OECD reported global foreign direct investment (FDI) flows rebounded during the first half of 2021; and, lastly, the United States International Trade Commission conducted a five-year sunset review of duties on alloy magnesium from China.

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Steel capacity utilization down to 84.3%

steel production

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U.S. steel capacity utilization for the week ending Oct. 30 fell to 84.3%, the American Iron and Steel Institute reported.

Steel output during the week totaled 1.86 million net tons, or down 0.5% from the previous week.

Meanwhile, for the year to date, production is up 20.3% to 78.9 million net tons.

OECD: FDI flows recover in 2021

According to a report from the Organization for Economic Cooperation and Development (OECD), global flows of foreign direct investment (FDI) bounced back in the first half of this year.

FDI flows in H1 2021 reached U.S. $870 billion, more than doubling FDI flows in H2 2020.

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This morning in metals news: real GDP increased by 2.0% in Q3 2021, according to an estimate from the Bureau of Economic Analysis; Ford Motor Co. released its Q3 results; and, lastly, several base metals prices have continued to retrace after surging earlier this month.

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BEA: real GDP up 2.0% in Q3

GDP graphic

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According to an estimate from the Bureau of Economic Analysis, U.S. real GDP increased by 2.0% in Q3 2021.

Meanwhile, real GDP increased by 6.7% in Q2 2021.

“The increase in real GDP in the third quarter reflected increases in private inventory investment, personal consumption expenditures (PCE), state and local government spending, and nonresidential fixed investment that were partly offset by decreases in residential fixed investment, federal government spending, and exports,” the BEA reported. “Imports, which are a subtraction in the calculation of GDP, increased.”

Disposable personal income fell by $29.4 billion, or 0.7%. Disposable personal income fell by 25.7% in Q2 2021.

Ford releases Q3 results

Automaker Ford Motor Co. reported Q3 net income of $1.8 billion, down from $2.4 billion in Q3 2020.

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U.S. housing starts declined in September from the previous month, the Census Bureau reported this week.

Each month, MetalMiner hosts a webinar on a specific metals topic. Explore the upcoming webinars and sign up for each on the MetalMiner Events page. This month, on Thursday, Oct. 28, the MetalMiner team will delve into the benefits of artificial intelligence and technical analysis. 

Housing starts fall

housing starts

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Housing starts in September reached a seasonally adjusted annual rate of 1,555,000, the Census Bureau reported.

The September rate marked a 1.6% decline from the previous month. However, the rate increased by 7.4% from September 2020.

Furthermore, single‐family housing starts reached a rate of 1,080,000, virtually unchanged from the revised August figure. Meanwhile, the September rate for units in buildings with five units or more reached 467,000.

Meanwhile, privately owned housing units authorized by building permits fell by 7.7% from August to September. However, the September 2021 rate of 1,589,000 came in virtually unchanged from September 2020.

Mortgage rates reach highest level since April

Prospective homebuyers are currently facing the highest mortgage rates since April, according to Freddie Mac.

The 30-year fixed rate mortgage weekly average reached 3.05% as of Oct. 14. The rate ticked up from 2.99% the previous week and 2.81% a year ago.

Meanwhile, the 15-year rate reached 2.3%, up from 2.23% the previous week. However, the 15-year rate came in down from 2.35% from a year ago.

Construction material prices rise

Construction material prices have continued to rise over the last year.

According to the Associated General Contractors of America, prices contractors paid for materials came in higher than prices contractors charged during the 12-month period ending in September.

“Construction materials costs remain out of control despite a decline in some inputs last month,” said Ken Simonson, the association’s chief economist. “Meanwhile, supply bottlenecks continue to worsen.”

The producer price index (PPI) for nonresidential construction increased by 5.2% over the last 12 months, the AGCA reported. However, the index fell by 0.9% last month.

Among metal products, the AGCA reported the PPI for steel mill products increased by 134% compared to last September. Meanwhile, the index for copper and brass mill shapes jumped by 39.5%. The index for aluminum mill shapes increased 35.1%.

Amid ongoing material shortages and supply-chain disruptions, the AGCA argued removing tariffs would alleviate some of the current pressure.

“The tariffs on lumber, steel, aluminum, and many construction components have added fuel to already overheated prices,” AGCA CEO Stephen E. Sandherr said. “Ending the tariffs would help immediately, while other steps should be taken to relieve supply-chain bottlenecks.”

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$3,623,000,000,000 — that is the increase of M2 money supply in 2020.

By now, there should be no surprise what the effect of printing 23% of total USD has on commodity markets.

Store-of-value assets Bitcoin and gold

Knut/Adobe Stock

Aluminum breached $3,000 per metric ton this week. Carbon steel price action is only now seeing moderate relief after what seemed to be a never-ending spike since August 2020.

Due to everchanging price increases, some manufacturers now face quotes that expire within 24 hours of issuance. It’s fair to say that the general MetalMiner audience has felt the pain of monetary inflation in some form or another.

M2 money supply chart

M2 money supply. Souce: Board of Governors of the Federal Reserve System (discontinued by the Fed since February 2021)

Each month, MetalMiner hosts a webinar on a specific metals topic. Explore the upcoming webinars and sign up for each on the MetalMiner Events page.

Gold as a store of value

While MetalMiner’s expertise is primarily in base metals, we also like to keep a close eye on larger macroeconomic factors.

Avid readers of our market updates are familiar with occasional articles on oil, tariffs, and precious metals, such as gold.

During times of rapid inflation, gold has historically served as the primary vehicle among store-of-value assets for institutional investors — and for good reason.

The physical properties of element 79 make it practically indestructible. Unlike the dollar, gold also has a high stock-to-flow ratio due to steady mining activity.

Considering all of this, it’s questionable how gold has stayed relatively flat for the last year.

During the past 15 months, the dollar has trailed down nearly 5%. Meanwhile, gold has barely moved a percent compared to the price in June 2020 and previous all-time highs in 2012.

So, what’s the deal here? Is another speculative asset taking market share from gold? Or is this simply a market irregularity?

As the headline suggests, there’s a mysterious trillion-dollar elephant in the room: Bitcoin.

Rise of Bitcoin

Whether through general media conjecture or more focused education, the “B word” has no doubt permeated the minds of investors since the beginning of the COVID-19 pandemic. A 900% increase during an 18-month period is going to turn heads, one way or another.

The Bitcoin community often uses the expression “digital gold” due to the striking similarities of its properties to gold. Parallels in terms like “mining” are easy enough to spot.

But what is it that makes them similar in principle?

Historical gold price chart

Gold fixing price in London bullion market, based in U.S. dollars. Source: ICE Benchmark Administration Limited via Federal Reserve Economic Data

A brief history of metals as money

When looking at the history of civilizations, money has come in many forms: beads, salt, cattle, etc.

The core reason why all of these failed as monetary vehicles is largely due to ease of production. For example, if a small colony used rocks as a form of money, mining stone quarries could significantly increase the supply with minimal effort (i.e., inflation). As stone production was accessible even for ancient civilizations, the value of the stone is drastically devalued upon each new quarry founded, akin to the dollar devaluing upon each new dollar printed by the Federal Reserve.

As time progressed, societies introduced sounder forms of money. In fact, the term “sound money” stems from the sound gold made when dropped from a distance.

When metals became the primary usage of money, gold soon became the global monetary standard due to its core properties. Gold requires drastically more energy and resources to mine, making new production more difficult than other materials. The longevity of gold’s uniformity also provides assurance that it will not corrode or deteriorate over time. The sound money principles of scarcity and durability are the foundations of what made gold attractive as a store-of-value asset. It is also why countries have used it as a monetary standard for centuries.

However, in 1971, the United States officially got rid of the gold standard. Thus began the era of unbacked fiat currency.

Money in the digital age

The 21st century is what some might call the digital age.

In the past 10 years, we’ve witnessed the dematerialization of everyday things into a digital realm: photos on Instagram, music on Spotify, social interactions on Facebook, video on Netflix, and the power to access and distribute all of this to 7 billion people with smartphones and computers.

When Bitcoin was introduced in 2009, it began with modest roots at a market cap of only a few hundred dollars.

Today, Bitcoin stores over $1 trillion dollars’ worth of value. It is now accepted as legal tender in the country of El Salvador.

Blockchain, the technology upon which Bitcoin is founded, presents the idea of money itself dematerializing into digital, decentralized and trustless networks.

Over the course of the following weeks, we will candidly explore the similarities and differences between gold and Bitcoin across the six properties of sound money: durability, portability, uniformity, divisibility, scarcity and acceptability.

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Before we head into the weekend, let’s take a look back at the week that was and the metals storylines here on MetalMiner, including aluminum prices, rising power costs and much more:

Each month, MetalMiner hosts a webinar on a specific metals topic. Explore the upcoming webinars and sign up for each on the MetalMiner Events page.

Week of Oct. 11-15 (aluminum prices, power costs and more)

aluminum price

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MetalMiner should-cost models: Give your organization levers to pull for more price transparency, from service centers, producers and part suppliers. Explore the models now.

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