On the whole, dollar strength is a mixed blessing for miners. A strong dollar in many respects equates to weaker commodity prices, an effect most marked in the AM and PM fix for the gold price, but also apparent elsewhere.
And yet, the very fact that commodities are priced in dollars can also act as an insulator. Thus, when the pound plunges, as it has just done following the Brexit vote, shares in London-listed miners are insulated from the worst effects.
Earnings are in dollars. If dollars are strong, earnings will be higher, relative to the local currency, ergo miners will do well.
This is an effect we’ve seen only too clearly over the past week, as Anglo American (LON:AAL), Glencore (LON:GLEN) have demonstrated.
In the initial panic, both Anglo’s and Glencore’s shares dropped, but they soon recovered. Indeed, shares in Anglo have more than doubled since they hit a three year low in January, and Glencore’s shares have performed equally well.
The mining sector is a truly international sector, and is not likely to be derailed by a little local difficulty in a small corner of Europe. Britain, as most international investors will now be wont to say, is “a far away land of which we know little.”
But London, at least for now, remains the capital of European finance and at least for now one of the top two or three financial hubs in the world.
With that status still intact, and with analysts now acknowledging that the coincidence of those three year lows for Glencore and Anglo with lows for other mining companies marked a cyclical low for the sector as a whole, the attractions of the miners becomes obvious.
Mining is at the bottom of a cycle that’s just starting to swing upwards. According to Bloomberg commodities swung into an official bull market in May.
Mining is an international dollar-denominated industry. Mining is financed out of London but operationally not exposed to the political uncertainty now sweeping across Europe.
And mining is unlikely to be affected by any crisis in consumer confidence or other economic weakness that the British situation – more correctly the English situation – might generate.
The behaviour of gold is likely to stand out slightly from this paradigm though. Gold’s upward swoop on the Brexit vote was wholly predictable, and those now-despised “elites” who weren’t frozen in the Brexit headlights or shut-in by the Euro-bubble around the Remain camp did quite well trading the result.
But gold’s role as the barometer of European uncertainty in the wake of Brexit is likely to recede pretty rapidly now. Some, like the analysts at Capital Economics, are talking openly of “Brexit-lite” and arguing that the economic effects to the UK are likely to be smaller than the doomsayers would have it.
The more politically-minded note instead that the Brexit vote has detonated several unexploded bombs under the Westminster consensus and that England has now created an inverse of the famed West Lothian question for itself - namely that what the provincial English say now holds for Scotland, Northern Ireland and London whether these others like it or not.
And they don’t appear to like it. Not one jot.
But be that as it may, the effects on both precious and base metals prices are likely to recede almost as rapidly as they arrived.
One month prior to Brexit, the gold price had barely taken note of the issue. And two months on it’s just as likely that the price will be moving on factors wholly extraneous to the painful death-rattles of the Mother of Parliaments.
After all, the consensus in European markets is that Brexit is done and that there’s no going back. “The big British question is now largely settled,” analysts from the German bank Berenberg said earlier this week.
And this is an echo of the noises coming politically from EU president Jean-Claude Juncker, although admittedly the ever-shrewd Chancellor Merkel has been more cautious. She may now be the best and last hope of the Europhile British.
After this short British hiatus, metals markets are now once again turning their gaze towards the Fed. Brexit looks to have put a rate rise back, yet again, but not for long.
By the time the dust has settled and David Cameron has disappeared into the late-summer sunshine to flick German towels off Spanish sun-loungers, it will once again be all about the Fed and the Chinese. Next stop, Donald Trump.