Deutsche Bank recently suggested that based on the continued strength of the US dollar vs the Euro and the Pound, the European mining sector is headed for a 20% drop. Copper has fallen 9% from its peak in Q1 2016, the USD has grown by more than 2%, and the European market has overperformed by 30%. According to their report released last week, this will lead to a significant correction next year; a larger drop than has been seen in the past three years.

At the same time, Caterpillar Inc. continues to revise its sales forecasts downwards, suggesting that 2017 will not see any significant improvement from their perspective as a key supplier to the mining industry worldwide. They do note however, that the US has a significant supply of used mining equipment that is delaying investment in new equipment despite the 2016 uptick in commodity prices. Should this rise continue, it will eventually improve Caterpillar’s situation as it triggers more exploratory work and expansion of existing sites.

In the US market, gold specifically, and precious metals in general, are expected to continue climbing.  While the major gains seen so far in 2016 appear to have peaked, there are indications that with the US election over and a “status-quo” candidate elected, and with fears of an improbable rate hike having faded, that growth will return in 2017.  Lending further credence to this is the relative stability of long-term interest rate expectations, as seen in 10-year US bonds.  According to the Bank of Nova Scotia, while gold stocks are trading 7-8% above the price of gold, this is well within the “normal” range of -3% to +17%, and well below the 40% and more seen prior to previous significant drops.

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