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CHINA'S iron ore surged to a record on Thursday after Rio Tinto lowered its Pilbara shipment guidance, suggesting that supply could remain tight even as Vale SA is set to resume full operations at its Brucutu mine. Mining giant Rio Tinto on Thursday lowered its guidance on volumes of iron ore it expects to ship from the key Pilbara producing region in Australia for the third time since April, citing operational problems.

The guidance cut came just hours after Brazilian miner Vale, the world's No 1 iron ore producer, said late on Wednesday that it will fully resume Brucutu operations within 72 hours, after a favourable ruling from an appeals court.

The most-actively traded September iron ore contract on the Dalian Commodity Exchange ended the session up 3.9 per cent at 831 yuan (S$165) a tonne, after hitting 837 yuan shortly before trading ended.

That was the highest level for the benchmark since trading of China's iron ore futures started in 2013.

Brucutu, which has been operating at only a third of its capacity, was shuttered in February as Vale's mine operations came under close scrutiny after a tailings dam collapsed in the Brazilian town of Brumadinho, killing more than 240 people.

Prices of other steelmaking raw materials at the Dalian exchange were also higher, with coking coal futures up 0.4 per cent at 1,398.5 yuan a tonne. Dalian coke futures edged up 0.7 per cent to 2,076.5 yuan a tonne.

Chinese steel futures extended their gains as well, with the most-actively traded October construction steel rebar contract on the Shanghai Futures Exchange rising by 1.7 per cent to 3,825 yuan a tonne. Hot-rolled coil futures jumped 2 per cent to 3,711 yuan a tonne.

Such gains may just be "sentiment-driven", with investors upbeat about upcoming trade talks between leaders of China and the United States, said Richard Lu, senior analyst at metals consultancy CRU Group's Beijing office.

Meanwhile, another report said that gold prices surged 2 per cent to their highest in more than five years on Thursday after the US Federal Reserve signalled possible interest rate cuts later this year, sending the dollar lower and US Treasury yields plunging.

Spot gold was up 1.7 per cent at US$1,382.70 per ounce as at 0657 GMT, after hitting its highest since March 17, 2014 at US$1,386.38. US gold futures jumped 2.8 per cent to US$1,386.30 an ounce, after touching their highest since April 2018 at US$1,397.70.

"The weakness in the dollar seen due to the rate cut expectations and a lot of short-covering due to the sudden jump in prices are behind the sharp move," said Benjamin Lu, an analyst with Phillip Futures, adding that some of the weaker stop losses were taken out. "With this move, the target for gold investors has moved to US$1,400 and the key is to sustain this momentum for this week. On the longer term, it is going to be difficult to stay above US$1,400 as with better conditions for riskier assets due to rate cuts, investors might move to equities."

Even as the US central bank left its benchmark interest rate unchanged for now, the shift in sentiment since its last policy meeting weighed on the dollar and US Treasury yields.

"Gold has taken a nice leg up" on the back of falling yields and dollar, said Chris Weston, head of research at Melbourne-based foreign exchange brokerage Pepperstone. "The question now is if there is going to be a 50 basis point cut in July, which could take gold into US$1,400." Gold prices have gained more than US$80 so far this month. Spot gold may gain more to US$1,404 per ounce, as it has cleared a resistance at US$1,371, according to Reuters technical analyst Wang Tao.

Other precious metals also rose, with silver gaining 1.1 per cent to US$15.31 per ounce, its highest in nearly three months, while platinum climbed 0.6 per cent to US$815.84 per ounce. Palladium rose 1.1 per cent to US$1,517.05 per ounce, its highest in 12 weeks. REUTERS