The overdue discipline applied by the U.S. Federal Reserve with an initial 0.25% increase in its benchmark rate is expected to be the start of a hiking cycle forced by vote-buying government spending, the Iran war, and closely associated sky-high oil prices.
With another increase tipped for later this year, the groundwork might have been laid for a U.S. political upheaval with an infuriated President Donald Trump at risk of serving his final two years as a lame duck, corralled by a hostile Congress.
Australia, which is also suffering from absurd spending priorities which include funding failed metal smelters as well as nonsensical energy, housing and taxing policies, will have no choice but to follow the U.S. up the interest rate ladder until spending slows and inflation wilts.
Like the U.S., there will be an awakening in Australia as households are forced to digest the unpalatable costs of failed government policies which have drained the public purse, forcing ever higher taxes on an electorate which is starting to recognise where the fault lies.
Most asset prices will be hit by rising rates because bonds and bank deposits compete for the cash which investors might otherwise allocate to equities while the case for gold as a globally recognised alternative currency remains appealing and should get stronger.
The knee-jerk US$108 per ounce fall by gold to US$4248/oz immediately after the U.S. rate increase was followed by a recovery to US$4298/oz as investors bought the dip which will be followed by a more significant revival.
Minerals 260 and Emerald Resources were the beneficiaries of the deals mentioned earlier with both securing capital from professional investors to fund the expansion of gold production.
The Minerals 260 deal saw the injection of $250 million to fund development of the Bullabulling project near Coolgardie in WA via a share issue priced at 88c, 1c above last sales at 87c.
Emerald upped the game by revealing a possible $400 million in debt funds from leading Canadian resource investor Sprott Group and Australia’s Macquarie Bank. Emerald slipped 19c lower at $6.73.
Significantly, the Sprott/Macquarie funds for Emerald are restricted to potential acquisitions, a sign that professional investors are calling the bottom of the gold market with bargains starting to emerge. Private investors are not far behind.
After heavy withdrawals earlier this year, investors are piling back into exchange-traded gold funds which sucked in $500 million over July and August as the “debasement” trade returned as a currency play based on a view that the U.S. dollar, and other paper currencies are primed to fall substantially thanks to the government debt burden they’re carrying.
Elliott Management, the U.S. corporate raider which is starting to exert control influence on Australia’s biggest gold producer, Northern Star, was an early mover in snapping up gold bargains after the big sell-off earlier this year which rubbed US$1000/oz off the gold price.
Most gold stocks lost ground this week, but not significantly. Northern Star was down 34c at $21.80 but did touch $21.64 before starting to recover. Genesis was down 53c at $7.20 after bottoming at $7.13 shortly after trading started yesterday (Thursday).
FirstAU was one of the few to swim against the tide, but only just, adding 0.1c to 1.1c after agreeing to a merger with Javelin Minerals, with the deal aimed to trim costs by trying to integrate four nearby gold deposits and husband scarce cash resources, a process likely to become a common event.
Elsewhere on the Australian market, it was a sea of red ink as investors ducked for cover as the impact of the rate rising process hit home. A handful of stocks managed to outperform yesterday as bargain hunters move in after falls early in the week and ahead of the rate rise.
Two small stocks to improve encouragingly in a down week were tungsten miner EQR Resources which added 2c to 44c but did trade up to 47c on Wednesday, and iron ore project developer Killi Resources which rose by 2c to 29c but did hit an all-time high of 34c on Wednesday.
Most copper stocks were sold down as the price of the metal was weakened by traders shuffling their warehouse stocks to try and have them in the right country should Trump levy a tariff on the metal.
An exception to the downward trend was Solstice Minerals which rose by 2c to $2.28 after reporting broad copper/gold zones in the latest drilling at its Nanadie project in WA which returned a best hit of 48 metres at 0.59% copper plus 0.16 grams of gold per tonne.
White Cliff Minerals also caught the eye of investors with a unique “mother and son” situation developing on its share register as multi-billionaire Gina Rinehart follows her estranged (just a billionaire) son John Hancock into the Canadian copper explorer.
Rinehart’s company, Hancock Exploration said it had acquired a 13.5% stake in White Cliff through a placement costing $8.77 million with the funds earmarked for an expanded drilling program at the company’s Rae project in the far north of Canada.
The deal appears to be a friendly move by Rinehart but anything can happen in the Hancock family.
Other copper stocks trended down. Sandfire slipped 39c lower to $20.90. Capstone lost 78c to $13.90 and FireFly was 1c weaker at $1.71 but Canaccord Genuity reckons it could rise to $3.45.
Boss Energy was a lone winner in the uranium sector adding 13c to $1.59 possibly in reaction to an upbeat markets day presentation on Tuesday.
Other uranium moves included Deep Yellow down 4c to $1.29. Paladin, down 56c to $9.46 and Bannerman, down 12c to $3.70.
Killi, as mentioned earlier was the best of the iron ore stocks with its 2c rise to 29c possibly because investors are recognising the unique geological nature of the company’s orebody in the Midwest of WA which promises an easy and cheap processing solution to yield a high-value iron product.
Fortescue, the Australian iron ore leader had a two-speed week, falling at first to an 18-month low of $16.16 before recovering later in the week to $16.67 for a loss of just 7c.
Other share price moves and news this week included:
PLS slipping 27c lower to $4.21 to lead a generally weaker lithium sector. Liontown was down 8c at $1.01 and Wildcat lost 2c to 34c.
Global Lithium was an exception to the weaker trend seen in its rivals, adding 4c to 65c after announcing that the first shipment of spodumene from its Manna project in WA would be made by next May.
New Hope was the pick of the coal miners which are benefiting from the high oil price. The stock rose by 8c to $6.39 this week. Whitehaven lost 34c to $8.18, and
Ardea, one of Australia’s last nickel hopefuls, stood out with a 1c rise to 42c as it continues to make progress with its Kalgoorlie project in WA which has strong Japanese backing.
