Following last week’s modest rate reductions in Canada and Europe, the U.S. this week signalled a small move down before the end of this year with more to come.
Some fund managers were disappointed at the cautious tone to the official line proposed by the U.S. central bank, which could see one cut before Christmas, but that they soon shifted their focus to the promise of a substantial market rally in 2025, after the U.S. presidential election.
It was a similar story on commodity markets where a sell-off in gold, copper and uranium has bruised confidence but not enough to prevent Citi, a leading investment bank, from sticking to upbeat forecasts in the latest edition of its global commodities quarterly.
Despite gold falling to US$2286 an ounce on Monday, following reports that China’s central bank withdrew from the gold market in May, the metal clawed its way back to US$2321/oz and remains on track to reach US$3000/oz over the next 12-mnths, according to Citi.
The same “buy the dip” approach can be seen in the bank’s view of copper which has suffered from heavy selling since mid-May when the price peaked at US$5.15 a pound, up 32% from early January to now be trading around US$4.52/lb.
Citi’s view is that copper will rally to US$5.45/lb by Christmas, a 20% increase on this week and a price which would be a fresh all-time high.
Uranium, another star which faded in May with a fall from US$94/lb to around US$82.75/lb, could be poised to resume its rise with US$110/lb in sight for next year, according to Citi, before testing its all-time high of US$146/lb.
Other investment banks are joining the uranium cheer squad, including Morgan Stanley which this week sparked interest in the metal with a report predicting a “nuclear renaissance” which would create investment opportunities across the sector, from uranium miners to equipment suppliers.
“We estimate that nuclear renaissance could be worth US$1.5 trillion through to 2050 in the form of capital investment in new global nuclear capacity,” Morgan Stanley said.
Paladin Energy was the sole Australian stock on a global selection of 51 companies named by the bank as beneficiaries of a nuclear revival with a price target of $17.45, up 22% on last sales at $14.23.
Overall, the Australian market eased slightly this week ahead of the financial year end on June 30, with trading clouded by portfolio cleansing and book balancing with the all-ordinaries index down about 1% meaning it is now up an uninspiring 1% since the start of the year.
On a 12-month basis, gold stocks have led the way up with the ASX gold index rising by 9% over the last 12-months well ahead of the broader metals index, which is down 7%, largely a function of lithium, nickel and iron ore falling.
After Monday’s China scare, gold was further rattled by a re-run of the “peak oil” saga of the 1970s with a report that the world is approaching “peak gold”.
John Reade, chief strategist at the World Gold Council, floated the concept of peak gold during a television interview, basing his theory that the world is unlikely to continue expanding gold output because it’s getting harder to find and costlier to produce.
If right and peak gold is almost upon us, the price of the metal could boom, but a more careful analysis also shows that the original “peak” theory which applied to oil proved wildly incorrect as geology and scientific innovation combined to reveal lakes of the stuff.
In fact, peak gold believers would do well to read the latest oil market report from the International Energy Agency which is forecasting an oil glut over the next six years as production rises and demand falls. So much for peak anything!
Pick of the local gold stocks this week was Westgold Resources which added 11c to $2.44 thanks to the prospect of expanded production from the Starlight mine, news which encouraged RBC Capital Markets to tip the stock as a buy with a price target of $3.30.
Evolution Mining was one of the heavy losers with a fall of 17c to $3.77 after warning of a hit to profits from flooding at its mines during the year. Macquarie Bank shrugged off the alert, telling clients the problem was already in the price and Evolution would bounce back to $4.
Santana Minerals attracted the attention of Bell Potter as it explores the promising Shreks deposit in New Zealand, adding 5c on the market this week to $1.08 but heading up to $2.15 according to the broker.
Spartan Resources was another gold winner with a rise of 8c to 83c after reporting thick and rich gold assays from drilling at its Never Never project in WA.
Gold stocks to lose ground this week included Kingsgate, down 19c to $1.61 despite reporting the first gold pour at its revitalised Chatree mine in Thailand. Capricorn Metals, down 21c to $4.53 even as Bell Potter said it would rise to $6.50 and Southern Cross Gold, down 12c to $2.68 after revealing a plan to “re-merge” with its spin-off, Mawson Gold.
A flatlining copper price which hovered around US$4.50/lb all week took its toll of the copper sector where most moves were down, including Sandfire which lost 37c to $8.75 and 29Metals which shed 6c to 48c.
AIC mines caught the eye of Shaw and Partners thanks to hitting its production target at the Eloise mine but slipped 4c to 44c, a country mile below Shaw’s price target of $1.20.
The major copper news of the week was a report from Canadian listed Ivanhoe Mines that it has achieved first concentrate production at its world-class Kamoa-Kakula mine in Africa only to see its share price slip by a marginal C6 cents to C$17.55.
Rare earth stocks continued to feel the effects of Chinese oversupply and fresh weakness in the price of its leading member, neodymium, which slipped another 1% to now be down 25% over the past 12-months.
Brazilian Rare Earths, which has iron ore billionaire Gina Rinehart as a major shareholder, fell by 15c to $3.32, weighed down by an $80 million placement priced at $3.30. Lynas lost 30c to $6.38 and Australian Rare Earths was down 1c to 10c.
Hastings Technology Metals swam against the rare earth tide with a rise of 6c to 27c after reporting that it had slashed $153 million form the cost of its Yangibana project in WA which now has a total cost of $474 million.
Red Hill Minerals was the biggest winner among iron ore exposed stocks, rising by 35c to $6.80 after announcing receipt of second $200 million payment for the sale of tenements which now form part of the Onslow project led by Mineral Resources. Red Hill will also receive an ongoing royalty.
Bell Potter joined other brokers in the debate about how to value Mineral Resources which has just sold a half share in the Onslow project haul road. It reckons the stock is a buy with a price target of $84.
Iron ore leader Fortescue Metals was $1 weaker at $23.26 while Canadian focused Champion Iron was down 2c at $6.57.
Other news and market moves in what was a down week, included:
- Lithium Plus adding 3.5c to 14c thanks to a shift of focus to include uranium and rare earths through a deal to buy two projects, one in the Northern Territory and the other in NSW.
- Global Lithium stuck with its namesake metal when reporting a 43% increase in the resource at its Manna project in WA, only to slip 1c lower to 35c even as Shaw and Partners said the stock was heading up to $2.20.
- Kingsland reporting outstanding metallurgical results from tests of material from its Leliyn graphite project in the Northern Territory but lost 2.5c to 17c.
- Nickel Industries, which had been the biggest local nickel winner thanks to exposure to the Indonesia mining industry, fell by 9c to 85c after reports of tightening government approvals.
- Lunnon Metals reported a one million tonne resource at 3.3% nickel at its Baker nickel project in WA, only to lose 4c to 21c, and
- Niobium remained a favorite of punters with Summit adding 2.5c to 30c and Reach rising by 1c to 17c after releasing positive exploration news at their exploration projects.
