Bullion’s strong jump just a whiff of what’s to come on back of lower inflation

Gold is the big winner from the sharp fall reported this week in U.S. inflation and the first clear look at an end to the cycle of rising interest rates.

By Tim Treadgold


A whiff of what’s to come, even if rates plateau at a high level, could be seen in the US$25 an ounce jump in the gold price within seconds of the announcement that U.S. inflation fell to 3% in June, the lowest in more than two years and one-third of last year’s 9% peak.

Aiding gold’s recovery to around US$1960 an ounce, seemingly on track to move back above US$2000/oz, was a corresponding fall in the value of the U.S. dollar which dropped to a 15-month low against a basket of major currencies.

A cheaper U.S. dollar boosted most commodities as investors scrambled to adjust their positions in a hectic burst of trading after the release of the inflation news.

Copper, the bellwether industrial metal, rose by 2.5% to US$3.88 a pound. Aluminium added 3% to US$2238 a tonne while oil rose by 1% to move back over US$80 a barrel.

Battery metals, the stars of financial markets for the past year, were almost forgotten in the scramble to adjust to a new investment model of falling inflation and the prospect of lower interest rates.

Sydney stockbroking firm Wilsons, while not recognised as a close follower of the resources sector, pre-empted the inflation fall by 24-hours with a “buy gold” research note on Wednesday which set out “the case for gold miners”.

The surprisingly bullish gold report from Wilsons pointed out that gold stocks had outperformed the broader market over the past 10 years and could continue to deliver thanks to the prospect of a pause in U.S. interest rates and then rate cutting “which should drive further upside in the Australian dollar gold price over the next six-to-12 months”.

Those comments were followed by strong price rises across the gold sector with leaders Evolution and Northern Star rising by 12% and 8% over the week, with even better results further down the food chain such as Bellevue’s 16% rise and De Grey’s 14% increase.

Most other gold stocks joined in the rally, including Capricorn Metals, up 64c (15.5%) to $4.76. Gold Road, up 13c (8%) to $1.64, and Black Cat, up 6.5c (18%) to 43c with Shaw and Partners tipping that Black Cat will hit 83c.

The gold rally looks especially strong on a sector comparison basis with the ASX gold index up 4.25% this week, taking its increase since the start of the year to 22.4%, a measure of how some investors started to move early into gold, leaving the all-ordinaries behind with a 4% gain for the year and the overall mining sector up a little less at 3%.

Other significant market events this week include a fresh scare from China, which is struggling to deliver a post-Covid recovery even with ongoing government economic stimulus.

China’s problems, almost all self-inflicted, have not yet hurt the share prices of the biggest miners, with BHP and Rio Tinto shaking off their reputations as one-trick iron ore exporters with copper becoming more important to both companies, Copper rose strongly this week, with BHP up $1.46 to $44.53 and Rio Tinto up $5.44 to $115.84.

Fortescue Metals Group, the biggest pure-play iron ore miner, also performed well despite news of a shareholder shuffle following the marital split of founders Andrew and Nicola Forrest. With no sign of a stock overhang, Fortescue rose this week by 80c to $22.37.

Lithium was the newsmaker among the relatively quiet battery metal stocks, with Canadian focused Patriot Battery Metals making waves for the wrong reason when forced to fight an aggressive short seller attack which initially rubbed 14c off the price before a rise back to $1.75, roughly where it was before the raid.

Macquarie Bank weighed into the short selling wrangle on Thursday, refreshing a buy recommendation on Patriot on the strength of encouraging drill results with a share price target of $2.30, potentially up another 55c.

Other battery metals news and share price moves included:

  • Pilbara Minerals continuing its price recovery after the sell-off earlier in the year, adding 9c this week to $5.09.
  • Cygnus Metals rose by 4.5c to 34c after reporting spodumene-bearing pegmatite boulders over a 2.6-kilometre section at its Auclair project in Quebec.
  • Azure Minerals added 5.5c to $1.66 after saying it would wait to see the results of current drilling before the next capital raising, and
  • Core Lithium added 4c to 97c after announcing the start of loading a second spodumene shipment from its Finniss project in the Northern Territory. Citi was unimpressed, listing the stock as a sell with a price target of 80c.

Copper and nickel stocks, two other members of the battery family, had a mixed week with limited movement as the copper price firmed by 2.5c to US$3.83 a pound and nickel was steady at US$9.30/lb.

Aeris had another tough week after a copper production guidance downgrade with the stock slipping 2c to 40c, half the 80c reached in February. Both Macquarie and Bell Potter reckon there is light at the end of the tunnel with Macquarie forecasting a future price of 65c and Bell Potter tipping 91c.

NickelSearch excited some traders with a report of massive sulphide mineralisation in drill cores at its Carlingup project in WA initially running the stock up by 95% to 11c before calm returned and the stock slipped back to 6.6c for a gain of 1c (18%).

Rare earth stocks ran out of puff this week, perhaps on reports of China’s weakening economy. Hastings was hit hardest, falling 25c to $1.35. Lynas lost 11c to $7.02 and Arafura was down 1c at 33c.

Global Lithium was a rare earth winner, adding 4c to $1.67 after reporting the discovery of rare earth mineralisation in drill results at its Manna lithium project in WA.

Other news and price moves this week include:

  • Deep Yellow reported positive drilling results from a return to the Mulga Rocks uranium project in WA but slipped 1.5c to 69c.
  • Boab Metals was 1c weaker at 18c despite reporting progress at its Sorby Hills zinc and lead project. Shaw and Partners was impressed tipping a future price for the stock of 52c.
  • Neometals signed a take-or-pay offtake deal with Glencore for vanadium from its project in Finland, news which lifted the stock by 1.5c to 50c.
  • Strandline lost 3.5c to 24c despite reporting the seventh shipment of heavy minerals concentrate from its Coburn sands mining venture in WA.
  • Battery Age Minerals said it had expanded the footprint of its Bleiberg zinc, lead and germanium project in Austria but saw its share ease by 2c to 50c.
  • Dreadnought added 0.3c to 5.8c after reporting high grade rare earths and niobium from drilling at its Mangaroon project in WA, and
  • Lotus announced a merger with A-Cap to create a new Africa-focused uranium stock, a move which lifted Lotus by 0.3c to 18c.

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