Gold bulls will start the week in great spirits as the precious metal trades above US$2,500 per ounce on firm expectations US interest rate cuts are imminent. The price reached the milestone-mark Friday before retreating and then rising again to nearly touch $2,510/oz.

"The recent movement in gold underscores the importance investors place on it as a safe asset, especially in times when economic and political outlooks are highly volatile. Personally, I maintain a bullish outlook for gold, with a medium-term target of $2,700/oz. This forecast is supported by several key factors," Quasar Elizundia, Research Strategist at Pepperstone, said in research note released Friday.

Elizundia pointed to the expected US Fed informal meet at the end of the week in Jackson Hole, Wyoming, after which chair Jerome Powell is expected to provide commentary.

"One of the main factors supporting gold's bullish trend is the expectation of interest rate cuts by the US Federal Reserve," Elizundia said. "As the potential start of a rate-cutting cycle approaches, gold becomes more attractive compared to other safe-haven assets that generate yields. If these cuts materialize, we could see an acceleration in gold demand, further boosting its price," he added.

The gold sector on the TSX gained nearly 2.5% at the end of last week.

Iron ore gloomy

In iron ore, however, the outlook is not so bullish. In fact it is not bullish at all.

Writing for sister publication, Mining News, columnist Dryblower outlined comments by Hu Wangming, chairman of Baowu Steel, said the Chinese steel industry is heading into a "long and harsh winter" as the Chinese economy plunges deeper into a property and financial crisis which is drying up demand for steel.

"In the process of crossing the long and harsh winter, cash is more important than profit," Hu said, a warning for other steel producing countries that he is willing to sell steel at a discount to try and maintain production.

Both Bloomberg and BMI (a Fitch Solutions company) have pointed to the weakening China steel sector in the last week.

"Industrial metal prices have tread water since the start of August, with the Bloomberg Industrial Metals sub-index rising by a marginal 0.12% in the month-to-date as of August 12," BMI wrote in its monthly commentary, released on Friday.

Analysts said that the stagnation was primarily due to a deteriorating Mainland Chinese demand outlook, the leading metals consumer globally.

"After peaking in May, the sub-index has reversed its gains and is now down 1.3% in the year-to-date as market sentiment wanes. Ferrous metals remain the hardest hit, experiencing notable losses in the year-to-date amid ongoing challenges within Mainland China's property sector," BMI said.

Ferrous metal have seen significant declines this year also, it added, with Mainland Chinese domestic steel rebar, hot rolled steel, and 62% Qingdao Iron Ore prices down 15.2%, 18.9%, and 28.3% this month so far respectively.

"Prices continued to be weighed down by the continued weakness of Mainland China's property sector. The ongoing property downturn in China still shows little sign of reversing, with investment in the real estate sector declining by 10.1% y-o-y over January-June 2024. We also note that iron ore inventories at Mainland China's ports remain elevated, hovering around 150.4mnt as of August 9," BMI added.

Hu meanwhile compared conditions developing in China with those of 2008 and 2015. If his forecast is accurate then every investor with exposure to iron ore should be preparing for steeper falls in share prices and shrinking dividends.

Signs of China's "long and harsh winter" can already be seen in the share prices of Australian iron ore miners, including the big boys of the industry. BHP is down 21% since the start of the year. Rio Tinto is down 19%, and Fortescue, a pure-play iron ore stock, is down 41%.