China’s struggle to reboot its depressed property sector is weighing heavily on iron ore and copper while political and stock market risks continue to grow in the U.S. and Europe.
A weak finish to a financial year is nothing new as investors take the opportunity to re-balance portfolios in preparation for the June 30 tax deadline, but in doing that they also have to form a view of what the new year will bring.
Unfortunately, the outlook for much of the world is not encouraging as multiple financial and political factors muddy the outlook.
The big financial event of the new year will be the keenly awaited and perhaps overdue cut in official U.S. interest rates, which will add to the appeal of gold and silver.
Political uncertainty in the U.S., Britain and France, which are locked in what could be game-changing elections, is an important positive for precious metals and their status as currencies.
Another wild card in the pack is the top heavy nature of the U.S. stock market where just seven companies, including Apple, Amazon, Alphabet, Microsoft and Nvidia, have spectacularly outperformed, creating the potential for a sharp correction.
Chip maker Nvidia’s rush to a market value of more than US$3 trillion and sudden status as the most valuable company in the U.S. is already being compared to dot-com boom (and bust) of the 1990s, which was led by network equipment maker Cisco, until it wasn’t.
The Australian market this week effectively marked time, as it has done for the last month, with the all ordinaries index down 0.5%, which was better than the metals index which lost 2% while the gold index was steady.
ANZ Bank repeated its optimistic forecast for gold, which it expects to reach US$2500/oz by the end of the calendar year, up 7% on the latest trades at US$2329/oz.
“The gold price will likely take a cue from the U.S. central bank’s pivot to rate cuts,” ANZ said, adding that “cooling U.S. macroeconomic data was increasing the prospect for the bank to start monetary easing soon”.
Local gold and silver stocks had a mixed week, with Capricorn Metals and Sun Silver two of the best performers.
Capricorn, which started to move up last week, added another 37c this week to trade around $4.84 with Bell Potter seeing the company’s recent decision to buy back 52,000 ounces of hedged gold as a positive move, tipping a future price for Capricorn of $6.53.
Sun Silver added 5.5c to 51c as interest grows in its Maverick Springs project in Nevada with the company reporting that a gravity survey at the site had started.
Pantoro was another gold stock to gain ground on exploration news, adding 1c to 9c after announcing a major drilling program at its Norseman project in WA.
Other gold moves of interest included De Grey, up 5c to $1.05, while sector leaders Northern Star and Evolution lost ground. Northern Star was down 21c at $13.31. Evolution slipped 8c lower to $3.54.
The best news for investors with a taste for gold was the latest central bank gold survey by the World Gold Council which found that many central banks plan to continue buying gold, a response which offsets last week’s reports of China’s central bank withdrawing from the gold market.
Australia’s rebooted debate about nuclear energy (we love it, we love it not!) did little for local uranium miners, which also failed to respond to a tiny uptick in the uranium price which rose by US50c a pound to US$86.25/lb.
Toro Energy was a rare winner after releasing an update study of its Lake Maitland uranium project in WA which lifted the stock by 3.5c to 36c.
Most other uranium stocks lost ground, including Boss Energy which was down 4c to $4.16 despite a new research note from CG Capital Markets which includes a price forecast of $6. Paladin was down 79c at $13.61 and Deep Yellow lost 3c to $1.45.
Copper stocks weakened as the price of the metal, which opened and closed the week around US$4.50/lb with the optimism of earlier in the year deadened by reports of a growing glut of the metal in China.
Stockpiles of copper in the warehouses of the Shanghai Futures Exchange are reported to be at a four-year high with a flood of 330,000 tonnes being delivered this month, according to Bloomberg.
A metals analyst from Zhengxin Futures told the news service that the excess metal “simply cannot be consumed” with wire and cable makers under pressure because of the ongoing downturn in the Chinese property sector.
Sandfire, the local copper favorite, managed a 10c gain over the week to trade at $8.74, just short of the new $8.90 target price set by Citi which has upgraded its recommendation from sell to neutral. 29Metals, another local copper stock with a strong following, went the other way, losing 2c to 46c.
Smaller copper stocks were largely unmoved, with one notable exception. Firefly added 9c to 77c after reporting high-grade assays outside the resource at its Green Bay project in Canada. Shaw and Partners sees the stock rising to $1.10.
Rex Minerals was another small copper explorer on Shaw’s buy list with a price target of 86c even though it was steady this week at 27c. Anax also opened and closed the week at 2.9c, while Aeris was 0.5c weaker at 23c.
Citi, one of the biggest bulls in the copper ring, reinforced its enthusiasm for the metal, bringing forward its copper price forecast of US$12,000 per tonne to around the end of this calendar year as interest rate cuts buoy economic growth.
Iron ore clung to a price of US$107/t for high-grade material (62% iron) while lower grade material (58% iron) moved down to US$85/t with that lower price a major factor in a move by Mineral Resources to announced the mothballing of its Yilgarn operations in WA.
Other producers of lower grade ore will also be under increasing pressure as China’s demand for the steelmaking material tops out and starts to fall.
Mineral Resources, which is also heavily exposed to the week lithium market, lost $2.39 this week to trade around $60.36. Fortescue fell by $1.34 to $21.95.
Wilsons Advisory warned during the week that iron ore “faces long-term challenges” but should find cost support in the US$80/t-to-US$90/t range, though they’re prices for 62% ore which implies that 58% producers will come even greater price pressure.
Lithium explorers outperformed producers in the latest demonstration of how it is better to travel than to arrive.
Wildcat Resources rose by 2.5c to 34c after reporting more high-grade drilling results from its Tabba Tabba project in WA. CG Capital markets reckons the stock is heading up to $1, and Winsome Resources added 2.5c up 87c after announcing a successful $25 million fund raising for its Adina project in Canada.
Pilbara Minerals was one of the leading producers to lose ground with a fall of 10c to $3.20 while Arcadium dropped 39c to $5.04 despite a Citi buy note and price targets of $9.40.
Other news and price moves of interest included:
- Niobium hopeful WA1 Resources continuing its stellar run, adding another $3.85 this week to $19.31. It was a 15c stock two years ago and $12 in January.
- Develop Global, the mining and engineering company led by Bill Beament, added 16c to $2.22 after he exercised 14 million options to boost the company’s cash balance by $10.5 million.
- Kingsland confirmed its status as a potentially significant graphite producer with an updated resource estimate which boosted the stock by 4.5c to 22c.
- Chalice Mining slipped 3.5c lower over the week to $1.36 but UBS retains a $1.50 target price, and
- Australian Rare Earths lost 1c to 9.1c despite reporting high grade rare earth mineralisation 60km south of its Koppamurra resource in South Australia.
