Australia’s inflation problem was exposed on Wednesday when the consumer price index edged up from 3.5% to 3.6%, a tiny move but in the wrong direction as analysts had been expecting a reading of 3.3%. Worse, it could possibly be the start of an upward trend.

Barrenjoey, a Sydney-based boutique investment bank, reckons the inflation rate after excluding seasonal volatile costs and holiday travel was steady at 4.1%. It also reckons that the first Reserve Bank rate cut has now been pushed back to February next year.

The rot started in the U.S. when an auction of seven-year Treasury Notes got a weak reception, triggering an across-the-board rise in government bonds with the all-important 10-year hitting 4.64%, the highest since early May and back to a level seen late last year.

By the close of business yesterday, 10-year bonds in every major country had risen, with one exception, South Africa, where the rate slipped by a miniscule 0.04% but was still sitting at an eye-watering 10.78%.

In Australia, the 10-year bond moved back up to 4.5%, continuing a rise from late March when 10-year briefly dipped below 4%.

Overall, the Australian stock market as measured by the all-ordinaries index fell by 1.4% this week with the index slipping back to 7894, roughly where it was at the start of the year.

The rates/inflation dilemma could hang around for the rest of the year, producing what was described in the Australian Financial Review newspaper as a “wicked problem” for the Reserve Bank which is being squeezed by increased government spending and a record inflow of migrants.

If there is a hope on the horizon, it can be found in commodity markets where prices remain elevated and could go higher, potentially easing pressure on explorers looking for their next capital injection to meet the cost of field work.

RBC Capital Markets painted a bright picture for the mining sector with an updated set of price forecasts with gold and copper leading the way up.

Gold, which had been showing signs of weakening in the face of rising interest rates, is expected by RBC to rally again, reaching US$2618 an ounce by the end of next year, up 12% on last trades at US$2338/oz.

Copper, which has also been slipping after a peak above the US$5 a pound mark two weeks ago, will pull back to around US$4.50/lb but stay there all of next year before a return to US$5/lb in 2026.

BHP’s failed attempt to acquire Anglo American had copper at its heart and with the price of the metal likely to stay higher for longer, a fresh bid is possible but only if Anglo American can sever its exposure to deeply-troubled South Africa.

In London, Anglo American shares dropped by 7% this week while in Australia BHP was down 1% with investors seemingly relieved that the deal had not succeeded.

On the commodity market, the copper price bounced this week from a low of US$4.75/lb to a mid-week high of US$4.88/lb before slipping back to US$4.76/lb, well down on the all-time high of US$5.16/lb reached 10-days ago.

That peak price was posted after Paris-based commodity trader and former Goldman Sachs banker, Pierre Andurand said copper was heading up to US$18.18/lb (US$40,000 a tonne), sparking a wave of comments from sceptics.

The major objection to Andurand’s bullish copper price tip was a view that the recent surge up had been as much about a squeeze of short sellers as genuine buying. A more likely future price according to Macquarie Bank is US$4.08/lb (US$9000/t).

Local copper stocks were mixed. 29Metals was the best performer, adding 8.5c to 57c while Carnaby was sold down sharply despite releasing an upbeat scoping study on its Greater Duchess project in Queensland, losing 13c to 65c.

Sandfire initially moved higher to $9.80, up 50c, before diving back to $9.26, where it started the week when Macquarie Bank listed it as a buy with a target price of $10.80.

Gold, as expected, was hit by the latest rates scare, shedding US$30 an ounce from a mid-week high of US$2362/oz to around US$2332/oz.

A picture similar to copper emerged in the gold sector with a broadly equal number of stocks rising and falling.

Ramelius, which is enmeshed in a corporate struggle with Westgold slipped 7c lower to $1.89 while Westgold added 14c to $2.26. RBC Capital Markets initiated coverage of Westgold with a buy tip and target price of $3.30.

Bellevue rose by 2c to $1.88 while De Grey lost 1c to $1.10. Sector leaders Northern Star (down 6c to $13.96) and Evolution (up 8c to $3.85) went in different directions.

Most uranium stocks were marked down thanks to a small (US$1.50 a pound) slip in the spot price to US$90.55 and the surprise sale by Boss chief executive Duncan Craib of a $21 million parcel of shares in his company which fell by 82c over the week to $4.59.

Other uranium stocks weakened. Paladin was off 55c to $15.70. Deep Yellow slipped 8c lower to $1.61, and Global Uranium was down 1.1c to 9.4c despite releasing encouraging drilling results from its Tallahassee project in the U.S.

A rare uranium winner was Berkeley Energia which clawed back 1c to 40c after launching a legal process against the government of Spain over its refusal to grant final approval to its Salamanca project.

Lithium stocks also ran out of steam after a few good weeks. Pilbara shed 15c to $3.81. Liontown was down 7c at $1.31 and Independence, which has a foot in the troubled nickel industry as well as lithium, was 39c weaker at $7.03.

Morgan Stanley warned twice this week that the lithium outlook was darkening after a modest price recovery. The problem, according to the bank, is that supply is growing again whereas demand is not. It sees Pilbara sliding further to a price around $3.35.

Iron ore, which has been dogged by repeated forecasts of a hefty price fall, continued to defy the commentators with a small rise of US50c a tonne to US$117.50/t.

Despite ongoing strength in the iron ore (and steel) market, Champion Iron fell by 54c to $6.86 while local leader Fortescue lost $1.79 to $24.89 and copped a sell tip and price target of $19.11 from Jarden.

CZR Resources, which is trying to sell its Robe Mesa project to a Chinese company, lost 2c to 28c because the deal remains gummed up in the foreign investment approvals process, and Forrestania was down 1.9c to 4.2c despite reporting a deal to buy an iron ore project near the Koolyanobbing operations in WA of Mineral Resources.

Other news and market moves of interest this week included:

  • Falcon Metals added 12c to 28c after reporting a high-grade mineral sands discovery near Bendigo in Victoria. The Farrelly prospect covers a zone measuring 1200 metres by 600m.
  • Lucapa Diamond Company rose by 0.5c to 9.3c after reporting the recovery of a whopping 195 carat near-perfect stone at its co-owned Lulo project in Angola.
  • Adriatic Metals fell 33c to $4.13 after a US$50 million placement at $4.15.
  • Australian Copper and Gold lost 6.5c to 52c after an $11 million placement at 32c a share to help fund work on its South Cobar project in NSW, and
  • DY6 Metals reported encouraging rare earth results from drilling at its Tundulu project in Mali though an initial surge higher to 22c quickly faded into a rise of 0.5c at 12c.