A smaller than expected 0.25% rise in official interest rates by the Reserve Bank added to a belief that the worst of the hiking process might have passed.

But that optimism was dimmed when the world’s biggest oil producing countries announced production cuts which immediately lifted the oil price back to US$93 a barrel, adding to inflation which central banks are trying to reduce.

The oil price rise alone should be enough to convince U.S. central bank governors to stick with their rate-increasing policy until inflation is under control.

The relief rally argument was certainly the opinion of Longview Economics, a specialist London-based research house, which said the recent strong upward move in equity markets was:

  • “One of those classic sucker rallies which often occur for one-to-three days in downtrends”.

Supporting the Longview position is the reality that nothing fundamental changed last week, except conditions might have worsened with war raging in Ukraine, Britain stumbling into a political and economic crisis and Europe struggling with its energy emergency.

The rise in gold, which was tipped in last week’s diary (“Gold regains some glitter”) was best measured in the ASX gold index which rose by 8.5%, reflecting a US$77 an ounce rise in the gold price. which has moved back over the US$1720/oz mark.

Local gold stocks feasted on the higher price, led by leaders such as Newcrest, which added $1.06 (6.5%) to $17.64, and Northern Star, up 75c (9.5%) to $8.37 with UBS tipping it as a buy with a $9.50 target price.

Other gold stocks did better than the leaders, including:

  • Bellevue Gold, up 9.7c (13.5%) to 82c after reporting progress at its namesake project in WA with a bonus in the form of an onsite renewable energy development.
  • Red 5, up 1.5c (9%) to 18c after completing a $60 million capital raising for its King of the Hills gold project.
  • Askari Metals, up 9.5c (31%) to 41c after reporting encouraging assays from drilling at its Benbur project near Burracoppin in the WA wheatbelt with a best assay of 6m at 2.37g/t from a depth of 31m.
  • Siren Gold, up 2.5c (14%) to 20c after reporting high grade gold and antimony assays at its Auld Creek project in New Zealand, and
  • White Rock Minerals, up 1c (13%) to 8.4c after reporting first high grade gold mined at its Morning Star mine in Victoria.

 

Gold should continue to attract investor interest as commodities and currencies battle rising interest rates and the threat of a synchronised global recession next year.

Citi, an investment bank, best summed up the situation in its fourth quarter commodities outlook which started by telling clients to “Maintain the Brace Position”.

“The next six months are likely to be tough for metal producers,” Citi said. “Tightening monetary policy and financial conditions as well as an ongoing commodity shock in Europe are driving down consumption by more than supply.”

Citi, however, expects gold to rise by between 10%-and-15%: “towards the mid US$1800s to low US$1900s per ounce.”

UBS was singing from the same hymn sheet with a sweeping downgrade of its commodity price forecasts, with lithium a notable exception as the energy transition steams along, boosted by the latest oil price rise.

Also on the positive side are coal and gas which, according to UBS, stand out “with supply disruptions supporting very high prices for the next two-to-three years”.

Both coal and gas (as LNG) are underpinning strong Australian trade data which sits somewhat oddly with an Aussie dollar limping along at US65c, appearing to be sidelined by events in Europe and the U.S. but likely to move back towards US75c next year.

Lithium, which has been booming on the stock market, is starting to have an effect on Australia’s trading position, with the latest report from the government’s chief economist forecasting an increase in the value of lithium exports from $1.1 billion last year to $14 billion next year.

Most listed lithium stocks continue to rise. Liontown added 16c to $1.61. Pilbara was up $1.03 to $5.55. Core rose by 14c to $1.17, and Allkem put on 88c to $14.47 with Macquarie sticking to its 12-month price target of $21.

Lithium discovery news included:

  • Widgie Nickel reporting high grade chip samples from field work at its Faraday prospect within the Mt Edwards project in WA including assays up 2.61% lithium, lifting the stock by 4.5c to 27c.
  • Larvotto Resources added 2.5c to 21c after reporting a lithium anomaly at its Eyre project in WA and,
  • Riversgold said it had expanded the footprint of its Tambourah project in the Pilbara region of WA, helping the stock add 0.5c to 4c.

Lithium news also included fresh reports that Mineral Resources is getting closer to spinning off its lithium operations after a recruiting blitz which has seen former Fortescue Metals staff sign up with MinRes.

Uranium, another beneficiary of energy transition, saw local U-stocks move higher, led by Boss Energy which added 19c (7%) to $2.66 after announcing the receipt of key approvals to restart the Honeymoon project in South Australia.

Paladin also picked up speed with a 4c rise to 80c, while 92 Energy added 3c to 54c after reporting elevated levels of radioactivity in the maiden drilling program at its Tower project in Canada.

Nickel stocks had a reasonable week aided by a blizzard of reports associated with a major conference during the week, speculation of a ban on Russian exports and a 2.5% rise in the nickel price to US$22,463 a tonne.

Pick of the nickel players was NiCo Resources which reported that a prefeasibility study into its Wingellina project in WA would be finished by Christmas, news which lifted the stock by 10c (21%) to 64c.

Other nickel moves were more modest and included:

  • Nickel Industries up 3c to 82c despite a cautious report from Macquarie Bank which warned about headwinds from higher energy prices at the company’s Indonesian operations.
  • Centaurus Metals added 1c to 99c after releasing an update on its plans to produce battery quality nickel sulphate at its Jaguar project in Brazil.
  • Lunnon Metals crept 0.5c higher to 85c after reporting an encouraging 6m at 10.95% nickel from drilling at the Baker Shoot in its Kambalda project in WA, and
  • Panoramic reported high grade assays from drilling below a fault in its Savanah project in WA with assays up to 9m at 2.95% nickel. The stock added 1.3c to 20c.

Iron ore, despite repeated warnings of a price correction triggered by China’s worsening property crisis, clung to a price around US$95 a tonne with a site visit to BHP’s big South Flank project the highlight of the sector.

Fortescue Metals, which is increasingly being treated as a green energy stock, added 54c to $17.24 despite Macquarie sticking with a $14.50 price target. Champion Iron rose by 64c to $5.44, and Fenix managed a rise of 0.2c to 25c after announcing that it had produced two million tonnes of ore at its Iron Ridge mine.

Other news and market moves included:

  • Alpha HPA rose by 5.5c to 45c after reporting that commissioning had started at its Gladstone high purity alumina project in Queensland.
  • Yancoal casually printed a cheque for US$1 billion as a debt prepayment, highlighting the huge volumes of cash flowing into the Australian coal industry. On the market, Yancoal added 40c to $6.17.
  • Whitehaven and New Hope followed Yancoal with big share price rises. Whitehaven put on $1.41 to $10.48 and New Hope rose by 64c to $6.84.
  • Encounter Resources added 0.5c to 12c after reporting that BHP had started drilling their jointly owned Elliott copper project in the Northern Territory.
  • Sandfire led the copper sector with a rise of 31c to $4.05 though Shaw and Partners sees the stock hitting $7.70 over the next 12-months, and
  • Chalice Mining clawed back ground lost in the recent sell-off to add 46c at $4.23 with Macquarie seeing a rise to $7.50.