More of the same is expected next week (and beyond) because the fundamental problems of panicking central bankers, war in Ukraine and a global energy shortage have not gone away.
For investors, the current cocktail of trouble makes long-term planning all but impossible, but for speculators prepared to ride wild market swings it’s an early Christmas.
Gold, which loves a crisis, was one of the rare winners in a remarkable week which saw the Australian stock market fall by 4% over the first three days before bouncing back by 1.8% creating another opportunity for “buy the dip” traders.
On the bullion market, gold enjoyed a rise of US$30 an ounce yesterday to sell for US$1654/oz, almost exactly where it was a week ago.
Leading local gold stocks whipsawed as conflicting data triggered buy and sell signals at the same time.
Northern Star rose by 40c (5.5%) yesterday to $7.53, but was still down 3.5c over the week. Evolution put on 8.5c (4.5%) yesterday to $1.98 but ended down 4c for the week, and De Grey Mining was up 7c (7%) yesterday to $1.04, a one-day rise which cancelled out a fall early in the week.
Gold could go a lot higher as it reclaims its centuries old role as a currency of last resort, much to the delight of gold bugs, led by Swiss financier, Egon von Greyerz who said this week that the global economy is in the early stages of “a financial storm of epic proportions.”
Given what happened in Britain, the generally unbearable von Greyerz might be right with a failed government budget strategy forcing the Bank of England to launch an emergency bond buying program to try and stem a run on the pound and a crisis in the pension system.
Biased in his ultra-bullish view of gold, it is getting harder to argue with von Greyerz given the explosive moves in currency values which this week saw the Australian dollar open at US67 cents, fall to US63c and then bounce back to US65c.
What happened to the Bank of England, one of the world’s most important central banks, was a warning that this is not a time for risk taking, which is what followed when the new British Government embarked on radical but unaffordable tax cuts and other changes.
Though just weeks into her job as Prime Minister, Liz Truss could quickly find herself out of office thanks to the policies of her Chancellor of the Exchequer, Kwasi Kwarteng, who has been nicknamed “Kami-Kwasi.”
For Australian investors, the lesson in the British crisis is that other countries are moving towards similar tipping points aggravated by the soaring value of the U.S. dollar which has already impoverished Sri Lanka and other third world countries loaded with U.S. dollar denominated debts.
Britain survived this week’s crisis despite looking like an emerging market. Other countries may not fare as well.
Powering the U.S. dollar is an interest rate squeeze designed to kill inflationary forces unleashed by central bank stimulus during the Covid crisis.
More U.S. rate rises are expected over the next three months. A senior U.S. central banker, Raphael Bostic, said he favours a third increase of 0.75% next month. Australia is expected to join the rate rise rush with its own increase next week.
ANZ Bank is tipping a Reserve Bank hike of 0.25% on Tuesday. Westpac’s Bill Evans reckons the rise will be 0.5%. Whatever the rise, it will pile pressure on all sectors of the economy, especially consumers.
Commodity markets are starting to reflect financial market turmoil as consumers reduce discretionary spending in what could be an early warning for iron ore and base metal miners.
ANZ said aggressive monetary tightening, the energy crisis and a slowing Chinese economy are all headwinds for commodities with energy the only winner thanks to Russian oil, gas and coal embargoes.
Shaw and Partners brought a touch of humour to the situation, telling clients that 75% of the stocks it covers are now in the “naughty corner” having been sold down over the past six months, especially iron ore, gold and diversified miners.
The good news from Shaw is that it also reckons the resource sector of the market is approaching an “inflection” point when a sustainable recovery could kick in.
Copper, a bellwether metal, had its own inflection point on Wednesday, adding US12c a pound to US$3.38/lb after the Bank of England crisis which forced it into a bond buying program to inject liquidity into desperate market.
The importance of copper to all forms of industry, including electric vehicles (EVs) saw it play a starring role at a U.S. gold conference where presenters were keen to highlight the combination of copper and gold in their orebodies, sparking a suggestion that the Denver Gold Forum should be renamed the Denver Gold and Copper Forum.
Copper exploration news also delivered a series of wins for investors in an otherwise down market, including:
- Austral Resources adding 3c to 21c after reporting high-grade assays of up to 5 metres at 5.74% copper from step-out drilling at the Lady Colleen mine in Queensland.
- KGL Resources rose by 2.5c to 31c after reporting drilling hits up to 2.6% copper over 12.38m from a depth of 978m at the Rockface project in the Northern Territory, and
- Carnaby Resources reported an intersection grading 3% copper over 30m from 60m to the bottom of the hole at its Mt Hope project in Queensland. On the market, Carnaby added 7c to 81c.
The other side of the copper coin was a 2.2c fall by Cyprium Metals to 7.1c after it said it was standing down its workforce at the Nifty copper project until financing of the project was complete.
Battery metals stocks, after dodging the widespread market downturn, were sold off early in the week but showed recovery signs later.
Pilbara Minerals, after a stellar run to an all-time peak two weeks ago of $5.08 lost 32c this week to close at $4.67, but did add 13c yesterday,
Other battery stock moves included:
- Core Lithium fell by 29c to $1.11 after a big share trade which saw $48 million worth of stock change hands at $1.05, perhaps a result of the Chinese company Ganfeng selling down its exposure.
- Sayona Mining said it had chosen a mine operators for the restart of its Canadian operations, adding 2c to 24c on the market.
- Cygnus Gold rose by 2c to 26c after reported an extension to its promising James Bay lithium project in Canada, and
- Critical Resources lost 1.6c to 6.5c despite reporting high grade drill results of up to 3.36% lithium over 1.5m from 151.5m from drilling at its Mavis Lake project in Canada.
Graphite stocks weakened, led by Syrah slipping 8.5c lower to $1.58 after reporting strike action at its Balama mine in Mozambique and Talga was 2.5c weaker at $1.35 despite striking a deal to sell graphite to a Swedish battery component maker.
Other news and market moves included:
- Dundas Minerals took off after reporting highly encouraging early-stage indications of mineralisation at its Fraser Range project in WA. The stock jumped by 38.5c (178%) to 59c with assays pending.
- Nimy Resources lost 7.5c to 28c despite confirming nickel sulphide mineralisation in the first two holes at its Godley project in WA.
- Lunnon Metals reported strong nickel assays from drilling the Baker Shoot at its Kambalda Nickel Project with a best hit of 6m at 10.85% nickel. On the market, Lunnon slipped 4.5c lower over the week to 85c – but did rise by 1.5c on Thursday.
- Ecograf said demand from customers had encouraged it to expand its Battery Anode Material (graphite) facility, helping the stock add 1c to 35c.
- Fortescue Metals was the best of the iron ore miners with a rise of 21 to $16.97 with chairman Andrew Forrest dismissing concern over a possible future fall in dividends, and
- Coal miners Whitehaven and New Hope continued rising as the energy crisis worsened after a gas pipeline explosion under the Baltic Ocean. Whitehaven added 4c to $9.21 with Macquarie Bank seeing $12 as the target price. New Hope rose by 5c to $6.27 with $7 the Macquarie target.
