Growing fears of another sub-prime lending crisis fuel talk of US$5000 gold

The threat of a fresh sub-prime lending crisis in the U.S. of the sort which preceded gold’s last boom years of 2007 to 2012, has moved a US$5000/oz price prediction from Goldman Sachs into view.

Largely ignored when delivered earlier this month, the US$5000/oz price tip from the world’s leading investment bank was based on threats being made against the U.S. central bank by the country’s president Donald Trump.

Goldman Sachs calculated that if just 1% of privately owned U.S. Government bonds were sold and the proceeds used to buy gold the impact of the extra cash would drive bullion up to US$5000/oz.

Not included in that estimate was a confidence crisis of the sort unleashed in 2008 when U.S. banks were swamped by failed home mortgages with a recent return of sub-prime lending identified in the loose lending standards of commercial loans.

Two big sub-prime borrowers, car loan company Tricolor and car parts maker First Brands, have started bankruptcy moves just weeks after being given Triple-A credit scores despite heavy debt loads with much of it off balance sheet.

Those corporate failures have an alarming parallel with the original sub-prime crisis and ensuing global financial crisis, particularly in the way Tricolor bundled its sub-prime car loans into packages to achieve a higher credit rating, identical to the collaterised debt obligations (CDOs) which triggered the 2008 home loan crash.

U.S. domestic gold buying is building on the global theme of de-dollarisation which is also accelerating as the U.S. wages its trade and ideological wars with the rest of the world.

In Australia, support for gold is being magnified by a surprise return of inflation with an August reading of 3% (up from 2.8% in July) credited to a steep increase in the cost of electricity.

Local gold stocks slipped slightly yesterday after the gold price eased to US$3731/oz from its mid-week all-time high of US$3788/oz but looked at over the week, the picture is a lot brighter with the ASX gold index is up 9%, taking its four-week increase to 26.5%.

Gold leaders performed strongly, possibly because of international interest flowing from a series of mining conferences in North America. Silver and platinum rounded out a strong week for precious metals.

Northern Star rose by $2.04 (9.8%) to $22.73. Evolution was up 95c (10.2%) to $10.41, and Genesis added 27c (5%) to $5.59).

But it was further down the gold, silver and platinum pecking order that the big moves were made, a sign the investors (and speculators) are getting bolder with their bets, including first signs of a blossoming of support for initial public offerings (new floats).

Examples of activity at the small end of the market included:

• Terra Critical Minerals, up 3.6c (57%) at 10c after the one-time uranium explorer reported high-grade silver from testing at its Mole River project in NSW, including 400 grams per tonne in one sample.

• Yandal Resources, up 17c (113%) to 32c after reporting thick intersections of gold in drilling at its Arrakis project in WA, including 28 metres at 1.9 gram a tonne from a depth of 143m.

• Podium Minerals, up 2.7c (67%) to 6.8c thanks to growing investors interest in its Parks Reef polymetallic project in WA.

• Adavale Resources, up 1c (33%) to 3.6c after reporting a series of encouraging assays from its drilling close to the historic London Victoria gold mine in NSW including 25m at 1.17g/t.

• Forrestania Resources, up 4.5c at 31c (up 17%) after announcing the acquisition of additional exploration ground in WA.

• Caprice Resources, up 2c (19%) at 13c after announcing the start of drilling ta its Island project in WA, and

• Perseus, up 48c to $4.76 after reporting solid progress on construction of its Nyanzaga mine in Tanzania.

Everlast Minerals, which is planning early production at its mineral sands project in Bangladesh, boosted new float interest with its 20c share blasting up 65c soon after listing, a 225% increase on the prospectus price of 20c.

The rapid rise by Everlast will boost interest in the queue of stocks making their way through the ASX listing process.

Lithium’s re-awakening continued to gather speed with widespread price rises despite concern that the recovery might be a false dawn.

Encouraging gains were made by IGO, up 40c to $5.11, Pilbara Minerals, up 6.5c to $2.41, Vulcan, up 13c to $5.02, and ioneer, up 2.5c to 16c with CG Capital Markets tipping a future price for U.S. focused ioneer of 40c.

UBS warned that there was a risk that the lithium stocks might have run ahead of the underlying lithium price, telling clients it is “more bullish than the street but equities have it priced in”.

Liontown received the harshest treatment from UBS with a sell tip and price target of 80c, down 12% on last sales of 80c.

Uranium stocks staged a strong recovery as the price of their metal moved back up above US$80 a pound for a gain over the week of 7%.

Bannerman led the U-stock rebound with a rise of 33c to $3.68, followed by Paladin, up 32c to $8.48 and Boss, up 9c at $2.07.

Iron ore continued its stubborn resistance to a price fall, sticking to a price around US$106 a tonne despite repeated forecasts of a pull back below US$100/t.

Fortescue led the iron ore sector up with a rise of 32c to $19.14. Mineral Resources rose by $2.86 to $41.06 and Fenix added 6c to 48c.

The Australian iron ore outlook continues to worry investment bankers as high grade ore from Brazil wins increased favour from Chinese steel mills which are also getting ready to received the first shipments of even higher grade ore from Africa’s Simandou mine.

Citi told clients this week that “iron ore strength looks stretched,” adding that market support has been buoyed by headlines around supply disruptions but “in our view, the fundamentals are already priced in”.

Other news and market moves of interest this week included:

• Copper stocks rose strongly with the price of their metal which gained 7% to US$4.81/lb. Best moves came from Sandfire, up $1.14 to $13.64. Aeris, up 6c to 43c. AIC Mines, up 2c to 38c and 29Metals, up 4c to 51c.

• Zinc-exposed stocks also staged an overdue rally as the price of the largely forgotten galvanising metal rose by 4% over the past month to just short of US$3000/t. Boab Metals, which is exploring the Sorby Hills project in the north of WA, added 10c to 43c while Broken Hill Mines rose by 6c to 66c.

• Trigg Minerals was the best of the antimony stocks with its rise of 4c to 14c after announcing the acquisition of the Central Idaho Antimony project, and

• Lynas led the rare earth sector higher with a rise of $1.98 to $16.93.