Will markets feel the heat of global warming?
It’s been a hot summer. The temperatures aren’t just rising in India but global developments are heating up the atmosphere across the world. The news of India buying Russian oil became a national headline before the Indian foreign minister pointed at incremental European energy imports from Russia after the Ukraine-Russia war broke.
Experts’ reactions to the potential Rupee-Rouble trade are mixed. Some believe such bilateral currency trades are short-lived. While others think that the US is getting unsettled by the feeling that US Dollar denominated trade is losing its hegemony.
Well, such theories aren’t new but the reaction of some top US diplomats is quite unprecedented and rather telling.
Meanwhile the difference between short term treasury yields and long term treasury yields in the US has been narrowing to a dangerous level. Going by anecdotal evidence, whenever the yield curve has inverted, i.e. short term yields rose above long term yields, the US economy has encountered recessionary pressure, albeit with a lag. Are we inching closer to such a situation?
On another note, Newmont—the world’s largest gold company by reserves and a constituent of S&P 500 index—touched its life time high recently. Now many of you might wonder: is it a big deal for Indian investors?
Although Newmont is listed in the US, the commodity that it deals in is universal, i.e. gold. Moreover, it’s a leading producer of silver, copper, zinc and lead as well. As per Newmont’s latest disclosures, the company has 96 million ounces of gold mineral reserves spread across geographies—35% in North America, 43% in South America, 13% in Australia and 9% in Africa. Interestingly, the company has been outperforming bullion for a while now.
Is the outlook for gold bright?
Well, the company has been working on multiple Greenfield and Brownfield expansion projects and has a project pipeline to sustain production through 2040 and beyond. Interestingly, according to the company’s estimates it can generate USD 400 million of free cash flows for a rise of every USD 100/per ounce in gold prices.
This may look like a random reporting of events but if you read between the lines, there could be quite a few trends emerging. We are scanning all these developments with a magnifying glass.
Connecting the dots…
Factors such as dollar strength, gold prices, inflation, interest rates and economic growth are interconnected. Equity investors often get ‘precious’ cues from debt, currency and commodity markets. Keep an eye out for such macroeconomic signals. They might become a major deciding factor for thematic investing.
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