Gold and Bitcoin, two zero-yield assets with most to gain from lower rates, led the way as the forecast fall had the effect of a rising tide, lifting all boats (good and bad).
Gold added US$68 an ounce to reach an all-time high of US$2158/oz. Bitcoin also reached an all-time high of US$68,750 on Wednesday before easing back to a still remarkable US$66,100.
To put those numbers into perspective, two years ago gold was selling for US$1628/oz and Bitcoin was trading at US$16,293 meaning gold has risen by 32% and Bitcoin is up more than 300%.
Whether Bitcoin is a real asset or just a casino chip is an interesting debating point but its spectacular rise (and that of gold) is a measure of the appetite for assets which are beyond the reach of heavily indebted governments and their “paper” currencies which are buying less every day because of the effects of inflation.
The rush for a seat at the recovery table can be traced back to a deeply significant report late last week that a key measure of inflation in the U.S. had fallen to an annual 2.4%, within the target zone of the U.S. central bank, the Federal Reserve.
Closer to home, there was another measure of the inevitability of a cut in interest rates with the yield on Australian Government 10-year bonds sliding below 4% for the first time since late last year when there was a rate-cut false alarm.
This time, the rate fall below 4% looked like the real thing as bond traders hurried to take up their positions ahead of official action.
In the U.S., the all-important 10-year Treasury Note fell to 4.1%. It did dip below 4% earlier this year but the latest slide has been accompanied by concern about the damage of maintaining high rates is doing to regional banks with a fresh round of bank failures tipped unless official rates fall soon.
The FOMO rally was aided by moderately encouraging news from China that it is targeting annual economic growth of 5% which should ensure reasonable demand for Australian raw material exports, though whether China can deliver on its target is uncertain.
Overall, the week was respectable for most investors with the ASX all ordinaries index trading up to an all-time high of 8032 points on Monday in reaction to the U.S. inflation news before easing to 8016 for a week’s gain of 0.5%, taking the increase since early November to 14.5%.
Mining stocks, which have been battered by weaker commodity prices clawed back 2% this week as measured by the metals index, which is still 10% weaker than the start of the year, while the gold index popped 12% higher to be up 17.5% since early January.
Gold stocks did well, but perhaps not as well as expected, especially on the international market where Barrick and Newmont rose by 7% and 9% respectively but remained well below their 12-month highs reached in May last year.
Critics claim that both of the global gold leaders are being avoided because of poor management decisions. Newmont is being punished for its over-priced acquisition of Australia’s Newcrest and Barrick for its risky expansion into strife-torn Pakistan.
Local leaders moved up with the gold price. Northern Star reached a 12-month high of $14.47 on Thursday, up $1.38. Genesis performed the same trick with trades up to a high of $1.99, before easing to $1.96. De Grey rose by 7c to $1.34. Bellevue was a slow mover, adding 2c to $1.57, while Magnetic attracted interest in its Lady Julie project, rising by 14c to $1.12.
Citi, an investment bank, advised clients to take profits from their gold exposure after the recent rally, but sees gold moving higher later in the year as a hedge against inflation and the uncertainty over the November U.S. election.
A possible rise to US$3000/oz is one of Citi’s forecasts but is assigned a low probability. The more likely outcome is for gold to “average a record US$2300/oz in the second half of the year.
Lithium stocks were mixed with some boosted by an optimistic outlook for electric vehicle (EV) demand in China as it tries a fresh round of stimulus, while others continued to be weighed down by the depressed price and heavy debts.
Lake Resources was the latest victim of the lithium crash, falling another 2c to 11c after announcing wholesale job losses and a revised look at the future of its Kachi project in Argentina. The stock was trading at 63c a year ago and $2.30 two years ago.
Lithium winner of the week was Dynamic Metals rising by 6c to 22c after striking a $20 million joint venture exploration deal with Mineral Resources over its Widgiemooltha tenements in WA.
Other lithium moves included Patriot down 10c to 90c. Pilbara down 29c to $4.04 and IGO down 79c to $7.56 with its exposure to nickel, the sick metal of mining, weighing on the stock.
Jim Lennon, Macquarie Bank’s seasoned nickel analyst, raised hopes that the nickel collapse is over, saying midweek that his latest visit to China raised doubts about the accuracy of demand and stockpiles with demand higher and stockpiles lower than widely believed.
His optimism was not reflected in the nickel price which remained stuck below US$17,600 a tonne but did boost the share prices of some nickel stocks such as Ardea, which gained 6c to 53c. Lunnon added 0.5c to 26c and Centaurus rose by 2c to 27c after unveiling a cheaper development proposal for its Jaguar project in Brazil.
Uranium stocks continued to weaken as the underlying price of the nuclear fuel slipped back below the US$100 per pound mark to be trading at US$95/lb, which is still 86% higher than 12-months ago.
Moves, small either way, included Lotus, up 1c to 27c. Boss, down 4.5c to $4.74. Paladin, up 2c to $1.20 and Aura, down 1c to 24c.
Most rare earth stocks continued to fade in response to China’s planned increase in supply, led by Lynas which slipped 13c lower to $5.98 and Hastings, down 2c to 60c.
Meteoric Resources was an exception after reporting enhanced recoveries from its Caldeira project in Brazil, rising by 3.5c to 22c with more to come if Bell Potter is correct which its buy tip and price target of 50c.
Other news and market moves of interest this week included:
- Coal continued to defy its environmental critics with coking, or steel-making coal, moving higher as supply falls, lifting stocks such as Whitehaven, up 17c to $7.16 and Stanmore, up 27c to $3.47.
- Iron ore reversed its recent downward trend with a modest rise of US$1 a tonne to US$117/t, enough for Fortescue to rise by 15c to $26.13 and Champion Iron to add 6c to $7.70.
- Mineral Resources was the odd man out among the iron ore miners shedding 97c to $66.57 following reports of problems with a contractor on its ambitious haul road in WA’s Pilbara. UBS thinks MinRes has further to fall with the bank setting a target price of $60.
- Syrah Resources led a slightly stronger graphite sector after reporting solid sales outside China, news which lifted the stock by 1.5c to 69c, good enough for Shaw and Partners to tip a future price of $1.30 and for UBS to see $1 as the target, and
- Copper miners gained ground after a positive report on the metal from UBS. The investment bank sees a supply crunch looming which helped lift Sandfire by 50c to $8.13 and 29Metals by 4c to 40c.
