With the Olympics Games over for another few years, I couldn’t help but feel amazed at these young athletes. Despite the patriotic yet friendly rivalry, the camaraderie amongst the Olympians was nothing short of inspiring. And the significance of each medal is worth more than its weight in gold. Literally.
With the USA having won the gold race, it got me thinking about that piece of metal’s journey: from the depths of the Earth’s crust to the palm of a champion in Tokyo (amazing!).
Which then got me thinking about how metal is traded, the impact of foreign exchange rates, and also the challenges the mining industry faces.
THE GOLD RUSH
Currency is the heartbeat of a country’s economy and any devaluation means less purchase power in the global domain. There are many factors that can lead to currency depreciation, such as high unemployment, inflation, and political unrest. But some nations deliberately and temporarily lower their currency valuation to stimulate their economies.
Investors have historically put their money in commodities. Because precious metals are in limited supply and hold an inherent worth that cannot be diluted, their value remains intact – even during tough economic conditions and currency fluctuations. Hence why their prices rise during volatile periods in the economy.
In a nutshell, less confidence in currencies drives up the price of precious metals.
So, what does this mean for trading strategies?
COPPER-BOTTOMED HEDGING STRATEGIES
In a Metal & Mining paper last year, EY stated that the industry faced extraordinary disruption from both internal and external environments.
New technologies and the race to digital transformation are driving new levels of disruption in this sector. And pressure on technology companies to secure the supply of New World commodities is another layer of disruption on current business models.
In short, metals and mining companies are facing higher input costs, which impact their bottom lines. Then there are the increased costs associated with the increasing complexity of operations or changes to the way mines operate — for instance, the rising use of technology. Are there are lessons to learn from the supercycle?
As mining companies try to limit risk, volatile commodity prices make it difficult for companies to forecast finances. Recent disruption in commodity prices has led to many companies having to close operations or make serious cuts to their workforce. Consequently, mining companies have made improving efficiency and reducing cost a pressing priority.
DON’T ACCEPT A WOODEN NICKEL
The mining industry faces fresh challenges daily. But many of these challenges can be overcome with the appropriate technology stack. And whilst there’s still immense pride in winning a silver or bronze medal, the same cannot be said for commodity trading software that falls short of a gold standard.
Data transparency is key to optimizing relations with the sector’s stakeholders. Collecting, processing and documenting massive amounts of data in a timely manner is critical to the success of mining companies. Some say that digital transformation is key to the automation of their operations.
What do you think? Get in touch with your thoughts.