It’s a stock-picker’s market as big picture turns blurry

Optimists are confident that the worst of a slump which saw the Australian stock market, as measured by the all ordinaries index, lose 1000 points (13%) in the six weeks to early last month is over.

Pessimists find that rosy view hard to accept even as gold, which has been the big winner from global uncertainty turned turtle, falling steeply from its all-time high of US3433/oz on April 22 to last sale of US$3137/oz, down 8.6% from the peak.

Gold’s high last month was driven in part by internet speculation that the metal would be upgraded by the world’s central bankers to “Tier One High-Quality Liquid Asset” status (HQLA) under their Basel-111 agreement, clearing the way for the banks to buy more gold.

But, like so much on the internet, the HQLA theory is wrong, according to the World Gold Council, which said yesterday that “there is a lot of online misinformation about Basel 111”, adding that “gold is not due to be reclassified”.

Gold staged a modest recovery early yesterday with a rise to US$3187/oz only to run out of steam, slipping down to US$3137/oz as peace talks continued over Ukraine and the Middle East, and that the trade war was starting to look like ending in a draw.

ANZ Bank said it had expected support for gold around US$3200/oz but a fall through that level (which has just happened) could see it drop to the next support level of US$3000-to-US$3145/oz

Despite that note of pessimism, ANZ said it is sticking with an end-of-calendar year gold price tip of US$3600/oz despite the shifting winds of the trade war.

The bank’s long-term positive view on gold in Wednesday’s edition of its Vault newsletter was driven largely by a growing Chinese appetite for the metal which was switching from being driven by jewellery demand to investment demand.

On balance, it seems likely that financial markets are experiencing a short-term truce with a future flare up likely because there is no evidence of trust developing in any of the conflicts, including the latest trouble spot of Kashmir where India and Pakistan have been fighting for decades.

For Australian investors these remain troubled times, not just because they’re on the sidelines as the big boys slug it out, but also because of the uncertainty to come as the new Albanese Government, with its monster parliamentary majority, prepares to act on its promises, including a new tax on superannuation savings.

Claims of panic selling by investors with self-managed funds which have more than $3 million in them is emerging as a local negative market factor, as is the choppy trade which is often seen in the final weeks of the financial year.

Stock pickers, those speculators prepared to trade on news of the day, are probably the only players happy with the blurry background where no clear pattern appears to be emerging with the all ordinaries index edging up by less than 1% this week while the gold index dropped by 9%.

Set against that flat-to-falling picture were examples of traders pocketing fast profits on positive news flow, such as:

• Peak Rare Earths rocketed up by 18c (145%) to 30c after accepting the terms of a takeover offer from its Chinese backer Shenghe.

• WA Resources rising by 99c (8%) to $12.91 after releasing a fresh set of highly encouraging assays from the latest drilling at its Luni target in central Australia with a best hit of 4.9% niobium oxide over 36.4 metres from a depth of 50m.

• Core Lithium, up 3c (42%) to 10c after raising hopes that it might redevelop its Finniss lithium project in the Northern Territpory as an underground mine capable of profitably producing 6% spodumene even in the current low-price environment.

• Liontown joining in what could be the start of a lithium revival with a rise of 20c (35%) to 76c even as research house Wood Mackenzie said the battery metal would remain stuck in the dog house of oversupply for at least another five years.

• Sandfire Resources rose by 34c to $10.69 on the strength of a copper price rising on reports of the trade war cooling down.

• Nimy Resources rose by 3.3c (40%) to 12c after announcing that drilling had started on its Block 3 gallium target at its Mons project in WA.

• Waratah Minerals rising by 4c to 37c after announcing the successful raising of $8.4 million to accelerate drilling at its Spur copper/gold project in NSW, and

• FireFly Metals adding 7c to 92c after reporting high grade VMS copper mineralisation in a new area of its Green Bay project in Canada.

It was solid upward moves like those which were at odds with the modest gains by sector leaders such as BHP which rose strongly early in the week before slipping a few cents lower as doubts developed about the strength of the overall recovery.

ING, a big Dutch bank, said that despite optimism following reports of a trade truce “there are reasons to remain cautious”.

The bank said even with signs of a cooling off in tariffs, those being applied could still hit consumption of raw materials.

“Meanwhile with the dollar rising, and if that rally continues, it could be a hurdle for metal prices, ING said. “With uncertainty still high, volatility is likely to remain elevated.”

Barclays Bank said the “de-escalation” of the trade conflict should see a less significant jump in inflation “and no recession” in the U.S. with that country’s central bank now not expected to cut its key interest rates until December, a forecast likely to anger the President, Donald Trump, who wants rates cut immediately.

Gold sector leaders were hit harder than explorers thanks to their direct exposure to the metal and less speculative interest with moves that included:

• Northern Star, down $1.68 (8.5%) to $18.

• Evolution, down 86c (10%) to $7.71, and

• Bellevue, down 12c (12%) to 85c.

Ausgold was one of the explorers which initially swam against the outgoing gold tide with a 3c rise to 66c thanks to news of an expanding gold footprint at its Katanning project in WA, only to be sold off to 62c late yesterday.

Minerals 260 got a modest vote of confidence from the market for its Bullabulling revival plan, rising by 1c to 14c.

Manhattan Corporation, once a uranium hopeful, scored a rise of 0.7c to 2.4c after announcing the acquisition of high-grade gold and copper tenements in Canada.

Delta Lithium confirmed the spin-out of its gold assets into Ballard Mining only to slip 1.5c lower to 20c.

Pilbara Minerals was another lithium stock to shrug off the price warning from the Wood Mackenzie, rising by 14c to $1.60 whereas Patriot Battery Metals slipped 1c lower to 25c despite boldly claiming to be the owner of the biggest lithium resource in the Americas.

Uranium stocks had another strong week as the price of their metal continued to edge higher, reaching US$71.60 a pound, up 11% in the past month.

Boss Energy traded up to $4.09 before fading to $4.06 for a gain of 18c over the week. Deep Yellow reached $1.36 before closing steady at $1.33, up 38c (40%) over the past month.

Other news and moves of interest this week included:

• Fortescue rose by 88c to $16.74 thanks to the iron ore price moving back over US$100 a tonne.

• Mineral Resources did even better with a rise of $6.06 to $26.83 thanks to its iron ore and lithium exposure.

• Encounter Resources rose by 3c to 22c after announcing an inferred niobium resources at its Aileron project in WA.

• Talga added 1c to 44c but did trade as high as 48c after announcing a binding offtake deal with a Swedish battery maker for graphite from its Vittangi project in that country, and

• Ecograf was another graphite winner, up 3c to 30c following a claim from a Kazax Minerals that a graphite shortage would emerge as demand grew for electric vehicles.