Metals rise but concerns grow about renewed inflation and US rate rises

Low profile Warsh is the relatively new head of the U.S. central bank and the man charged with fighting inflation which is showing signs of making an economy-damaging return, possibly forcing a fresh round of interest rate increases.

The annual gathering of bankers and business leaders in the U.S. mountain resort of Jackson Hole, Wyoming, is the scene of Warsh’s set-piece address at 10am Friday, U.S. time (2am Saturday Sydney time).

His challenge is to explain how the U.S. will tame its worsening debt crisis which last week saw total government borrowing hit an unprecedented US$40 trillion, lifting the annual repayment commitment from 11% of tax revenue in the year 2000 to 21.5% today.

Any increase in rates could tip the U.S. into an economic crisis at precisely the wrong time, not simply because of domestic and geopolitical issues, but because of the potential for an “October surprise”.

Some of the biggest economic events in the past have occurred in October, including the 1929 and 1987 stock markets crashes, and while no-one is openly predicting a repeat this year, the warning lights are blinking.

The latest destabilising event, a totally avoidable U.S. v Canada trade war, is the latest issue feeding into the October surprise theory, alongside the equally avoidable Iran war.

But the biggest worry is that the U.S. Government is borrowing in competition with artificial intelligence (AI) data centre builders, placing unprecedented pressure on interest rates – just before the U.S. holds its important mid-term elections which could neuter the country’s President, Donald Trump.

Lenders to the data centre rush are showing signs of becoming nervous about the depth of the market for high-priced AI models, a growing community backlash about energy and water supplies, and fear of a “fax machine” event, a reference to what happened to fax after the invention of email.

Bundled up its easy to appreciate why some investors are concerned, turning to the more easily understood supply/demand fundamentals of commodities and the world’s ultimate non-government currency, gold.

The recovery in gold, which started last month after the sell-off earlier in the year, has levelled out after a strong rise of US$644 an ounce (16%) from the low point of US$3979/oz to last sales at US$4623/oz.

Most gold stocks were steady this week as the market waited for Warsh with the focus shifting to uranium, a metal increasingly recognised as a big winner from strong electricity demand and a structural deficit in supply of the nuclear fuel.

After six months stuck between the tramlines of US$84 a pound and US$87/lb, uranium this week moved above US$90/lb on the spot (short-term) market.

Paladin Energy led the way up in the Australian uranium sector with a rise of 29c to $11.98 taking its increase over the last month to $2.41 (25%).

Other uranium moves this week included Deep Yellow, up 2c to $1.71 (but up 26% over the month). Boss Energy was steady at $1.50 but is up 21c (15%) for the month, and NexGen Energy, up 18c at $15.38 as interest grows in a possible joint venture with BHP in Canada.

Atomic Eagle, which has reclaimed title to the Madaouela project in the central African country of Niger, slipped 2c lower to 54c but has risen by 13.5c (33%) over the past month. Shaw and Partners is tipping a target price for Atomic of $2.10.

Zinc, as mentioned earlier, made a return to the winner’s circle as hints of a Chinese squeeze on supply emerged, with the price rising to a four-year high of US$3896 a tonne, up 8% in the past month, taking the rise this year to 40%.

Develop Global, best known as a copper producer but also with exposure to zinc, continued its rally, rising this week by 42c (8%) to $5.62, up $1.08 (24%) since the start of the year with more to come as the company plans a major expansion of its Woodlawn copper and zinc mine in NSW.

Best gold moves came from small producers and explorers, led by Torque Metals which rose by 4.5c (15%) to 26c after reporting the recovery of large nuggets from the latest drilling at its Ritz project south of Kalgoorlie in WA (previously knowns as the Paris project). CG Capital Markets has a 55c price target on Torque.

Brightstar Resources rose by 7.5c (15%) to 58c after reporting extensive evidence of visible gold during drilling at its Two Mile Hill project in WA. Shaw reckons the stock is heading up to $1.44.

Greatland and Perseus joined the gold-money flood with their annual profit statements revealing the impact of the high gold price.

Perseus rose by 50c to $6.66 after reporting a 14% profit increase to $480 million with the company’s cash balance rising above $1 billion. Greatland, which slipped 38c lower to $13.25 said it had $1.3 billion in cash.

Other moves by gold stocks included: Westgold, up 29c to $6.68 (UBS sees a future price of $8.25). Alkane, up 11c to $1.93 (Bell Potter has a target of $2.15), and Westgold, up 22c to $6.61 after announcing plans to expand the mill at its Meekatharra project in WA.

Leading investment bank UBS rattled the lithium sector with a cautionary report that said the recent recovery in the price of the battery metal had peaked and it was downhill for the next year, at least.

The bank sees the price of spodumene (upgraded lithium ore) slipping to US$2438 a tonne next year, down 43% on an earlier forecast largely because supply has been rising quickly.

Local leader PLS lost 19c to $5.18 despite Macquarie Bank tipping it as a buy with a price target of $8, a price target which is close to double the $4.60 forecast from Morgans which told clients it was time to “trim” exposure.

Other lithium moves included: Liontown, down 16c at $1.17. Wildcat, down 5c to 39c and IGO, down 42c at $8.30 despite paying its first dividend in two years. RBC Capital Markets reckons IGO will slide to $7.

Copper continues to trade close to an all-time high at US$6.62 a pound thanks to strong demand, especially from data centres and EVs, which helped local copper star Sandfire rise by $1.07 this week to $23.55, down slightly on the all-time high of $25 reached on Wednesday.

Brokers and investment banks believe Sandfire’s share price is ahead of the company’s financial fundamentals. RBC has a price target of $20. Morgans reckons $23 is the target with both implying a future price fall.

FireFly Metals was steady at $1.88 after announcing the successful raising of $190 million to fund work on its Green Bay copper project in Canada, while Anax rose by 0.2c to 3.6c after announcing a resources increase at its Mons Cupri project in WA.

Other news and market moves of interest included:

• Mineral Resources fell $3.19 to $65.67 despite reporting a strong profit of $822 million and a dividend of 83c a share for the June 30 year. RBC reckons the stock will rise to $80. UBS says $79.

• Lynas Rare Earths lost 77c to $16.22 despite a sharp increase in net profit to $222.4 million in the June 30 year.

• Chalice slipped 9c lower to $1.42 after reporting an approvals pathway for its Gonneville polymetallic project on the outskirts of Perth, and

• Encounter Resources added 4.5c to 27c after reporting fresh high-grade niobium result from drilling at its Aileron project in central WA.