The rise in gold to US$2447 an ounce followed the latest hints from the U.S. central bank that rate reductions are just weeks away, setting the scene for a buoyant Diggers and Dealers conference which starts in Kalgoorlie on Monday.
But before Australia’s premier mining event gets underway, the gold price could be higher, perhaps testing the US$2500/oz level (or more), thanks to threats from Iran of a retaliatory strike at Israel for its doubled-headed assassination of Hamas leaders.
Silver is riding on gold’s coattails at US$29.07/oz, up US70 cents this week, possibly heading for the US$36/oz forecast as next year’s average by J.P. Morgan, a leading investment bank.
Offsetting this week’s precious metals optimism was another setback for the critical metals sector with a decision by Albemarle, the U.S. specialty chemical maker, to stop work on a number of Australian lithium projects.
Albemarle’s slowdown follows a persistently low price for oversupplied lithium which is about to get worse, with Liontown producing first lithium at its Kathleen Valley project in WA.
Iron ore was another newsmaker this week, firstly thanks to a major shareholder selling a big parcel of Fortescue shares, followed by fresh concern about Mineral Resources, and finally by a positive assessment of Chinese iron ore demand from Rio Tinto boss Jakob Stausholm.
Overall, financial markets enjoyed a relief rally which started with Australia’s latest inflation measure which was up, but not by as much as feared, which might have cleared the way for Australia to follow U.S. rate cuts.
The all-ordinaries index rose by 2.5% to reach a five-year high, the broad metals index followed with a 1.5% rise while the gold index failed to keep pace with the price of gold but was steaming higher yesterday as the reports of a wider Middle East war broke.
China added to the picture of economic recovery with its key stock market index, the CSI 300, rising by 2% after the central government said it would do more to boost growth.
In the U.S. the Dow Jones and the S&P 500 headed back towards record territory after Federal Reserve chairman Jay Powell gave the best indication yet that rate cuts might start next month (September).
Gold stocks in Australia failed to respond enthusiastically to the rising price of the metal, reintroducing a value gap that was evident in June but started to close in July.
Sector leaders were lacklustre. Evolution slipped 1c lower over the week to $3.96 and Northern Star could only manage a 20c rise to $14.22 despite a rise in the U.S. dollar gold price and an even bigger rise in the local gold price which cleared A$3750/oz thanks to a fresh fall in the exchange rate.
News flow also failed to spark much interest from investors. Bellevue added 3c to $1.40 after a site visit by bank analysts. Ramelius rose by 3.5c to $1.97 after releasing an upbeat June quarter report, while Perseus slipped 1c lower t $2.57 despite a strong quarterly and the promise of a go ahead decision soon on the Nyanzaga project in Tanzania.
The difference between the physical gold market and equities could be a result of rich investors and fund managers turning more to the metal for their gold exposure, dodging the problem of poor mining company management and mine outages.
Just how busy the direct gold investors have been was revealed in the latest market report from the World Gold Council which said that private purchases of gold rose to 329 tonnes in the June quarter, five-times higher than in the March quarter.
Lithium stocks, after news of Albemarle’s slowdown, showed signs of recovery. Liontown rose by 2c to 98c and if Bell Potter is right it could be on the way to $1.90.
Independence, which is also burdened by its nickel exposure, slipped 25c lower to $5.56 despite a positive report from boutique investment bank Jarden which reckons the stock will bounce back to $8.30.
Atlantic Lithium could deliver an even bigger surprise if Wilsons Advisory is correct with a report which said the stock was quietly making progress at its Ewoyaa project in Ghana and while it lost 2c this week to 35c Wilsons is tipping a big bounce to $1.05.
Fortescue was the most closely watched iron ore stock after a major investor, New York-based Capital Group, offloaded $2 billion worth of shares in the Andrew Forrest led business which has struggled to make the case for its heavy investment in hydrogen.
But after a 10% share price fall in a single session Forrest’s true believers returned to their favorite stock, steadily rebuilding the price from a midweek low of $18.27 to around $19.08, still down $1.55 over the week.
Banks and brokers remain confused about Fortescue with price forecasts spread between $14.25 from Macquarie and $23 from Morgans which this week upgraded its advice to buy from hold, the first buy from top firm for weeks.
Mineral Resources, another iron ore miner with lithium as a side bet, also remains a mystery for professional investors. Bell Potter is leading a small band of optimists with a price tip of $80 even as the stock limps along at $54 while Jarden is the big bear with a $44.70 price tip, down $3.80 from last week’s forecast of $48.50.
What worries Jarden is the high level of debt accumulated by Mineral Resources and the deals undertaken to raise cash, including the sale of a half share in a haul road and the pre-sale iron ore, describing the stock as “the magic pudding”.
Copper responded to the combination of imminent rate cuts and more government stimulation of the Chinese economy with a rise of US15c a pound to US$4.16/lb, a rise which will have caught some fund managers on the wrong foot after they were busy offloading copper during July.
Citi, the biggest bull in the copper ring, pulled its horns in with a downgrade of its US$5/lb forecast for the end of the year to US$4.31/lb, acknowledging the headwinds buffeting the commodities market.
However, by the middle of next year thanks to rate cuts and a Chinese recovery, copper should have returned to US$4.54/lb and possibly up to US$5.50/lb, according to Citi.
Local copper stocks rallied as the price rose, led by Metals Acquisition which added 42c to $19.54 after a thick and rich intersection at its CSA mine in NSW with a best hit of 22.1 metres at 9.8% copper from a depth of 167.4m.
Sandfire continued to recover after a modest sell-off, rising by 13c to $8.96, perhaps heading for the $10 target seen by Macquarie.
The investment case for copper was reinforced during the week by Stausholm who said that he would like to grow Rio Tinto’s copper business, something BHP is actually doing with its latest deal to buy a stake in the Filo del Sol project in Argentina.
Nickel stocks remained in the doghouse despite signs of trouble brewing in Indonesia’s nickel sector where heavy Chinee investment is becoming a problem, especially in dealing with the U.S..
There was one interesting nickel winner during the week with Indiana Resources winning a US$90 million settlement from the government of Tanzania over the forfeit of the Ntaka Hill nickel project in 2018. Costs have to be deducted from the arbitration but Indiana’s stake should grubstake a fresh focus on exploration.
Other news and market moves this week included:
- Bannerman led a uranium revival with a rise of 31c to $3.02, perhaps heading up to Shaw’s target ambitious price of $7.40. Boss rose by 10c to $3.72 and Paladin added 27c to $11.70.
- Chalice enjoyed a solid 8c rise to $1.16 after the release of a positive June quarter report including comments from chief executive Alex Dorsch that the palladium outlook is improving.
- Syrah continued to sag in what Jarden called “brutal market conditions” for graphite, closing yesterday at 27c, down 2c to take its fall since the start of the year to 39c.
- Kairos added 2c to 10c after raising $20 million from the sale of non-core acreage to Pilbara Minerals, and
- Burgundy Diamond Mines slipped 1c lower to 16c despite a solid June quarter report which earned it a buy tip from Bell Potter and price target of 28c.
