But whether the U.S. heads for the exit after pummeling Iran from the air, the reality is that severe damage has been done to the world’s oil supply and that could mean a long-term increase in the cost of everything, and shatter confidence in the U.S., and its currency.
Australian miners and farmers are feeling the squeeze from shortages of diesel, chemicals, and fertilisers, which will be reflected in lower profits and, in some cases a struggle to survive.
On the upside, investment opportunities are emerging as a new economic reality emerges with prices for all forms of energy increasing. Lithium, coal, and uranium have joined the oil party.
While too early to clearly see the shape of the future, there is no doubt that profound changes will flow from events of the last month with one the most interesting being a gold revival as more countries and rich investors reduce exposure to a high risk U.S. and its dollar.
The 7.5% rise in the gold price this week to US$4700 an ounce revitalised the sector whereas oil slipped from a midweek high of US$116 a barrel to trade at a still elevated US$104/bbl, roughly where it started the week.
It is stating the obvious to say that what comes next is anybody’s guess but in the final hours before the four-day Easter break there’s a fair chance that investors will sit on the sidelines, leaving the running to fearless speculators.
This week’s short trading session was a see-saw of falls and rises culminating in 1.2% rise in the all ordinaries index yesterday (Wednesday) which took the local market back to roughly where it was on Monday as fears of stagflation (low growth and high inflation) corroded investor confidence.
The diesel shortage which has been eating into the mining sector showed signs of easing with the broad-based ASX metals index rising by an impressive 11% this week, including 5% yesterday, but it’s equally interesting to note that the index is still down 10% since the Iran war started.
Gold is where the most encouraging news can be found with the ASX gold index up 7% yesterday, taking its rise over the past three days to 18%, though that rise means the sector is still down 19% over the past month.
Seasoned London-based investors are getting excited about the outlook for gold, especially if TACO Trump walks away from the mess he helped create in the oil-rich Persian Gulf.
John Meyer at the broking house SP Angel said in a note to clients yesterday that gold was being influenced by strong Chinese demand and the growing rush to “de-dollarise,” an event expected to accelerate as the U.S. relationship with Persian Gulf countries deteriorates.
“The strong relationship between oil-rich Gulf States and the U.S. over the last 40 years has been a boon for the U.S. dollar and supports its status as the global reserve currency with Saudi Arabia, the UAE, Qatar and Bahrain all pegging their currencies to the dollar,” Meyer wrote.
“Furthermore, sovereign wealth funds from the Gulf Cooperation Council are heavily invested in U.S. Treasury bonds and U.S. equities.”
The key point made by Meyer is that if Trump walks away without re-opening the Straits of Hormuz it will mark a potential end to the U.S. security influence over the region.
“We see gold as a key beneficiary of a radical shift in the current ‘petro-dollar’ status, with the U.S. less reliant on the Gulf following its transition to being a net energy exporter,” he wrote.
Biggest winner from the recovering gold price was sector leader Northern Star which rose by $1.47 (7%) yesterday to $21.83, taking its rise over the short trading week to $2.88 (15%), though it is also worth noting that the latest price is effectively where the stock was two weeks ago and is still down $10 on a month ago.
UBS sees Northern Star continuing to claw back lost ground or, in its words, “reset the compass” with the bank flipping from a sell recommendation to buy and a target price of $28.
Other gold moves and news included:
- Greatland Gold, up an eye-catching $2.56 (24%) to $12.65 thanks to an updated resource estimate for its Telfer mine and a fresh analysis of the nearby O’Callaghan’s tungsten deposit. CG Capital Markets sees the stock rising to an all-time high of $15.45.
- West African Resources added 26c $3.39 after releasing upbeat production guidance for the year ahead. Macquarie has a price target of $4.50 on the stock.
- Saturn rose by 5c to 51c with CG tipping a future price of $1, and
- Evolution Mining added 79c to $13.59 while Genesis put on 25c to $6.28.
Energy in all its forms had a good week as the reality of an oil-starved world dawns on investors.
Local oil leaders Woodside and Santos rode out the bumps of an up/down oil price with Woodside adding 95c over the week to trade at $34.98, down slightly on its 12-month high of $35.82 reached on Tuesday. Santos added 79c at $8.
At the small end of oil and gas, Northern Territory-focused Beetaloo Energy caught the attention of traders, adding 9c to 34c while Omega Oil & Gas, a well-placed player in Queensland’s emerging Taroom Trough, rose by 21c (35%) to 83c.
Uranium stocks moved sharply higher despite a flat price for the nuclear fuel. Paladin added 68c to $11.93. Deep Yellow was up 7.5c at $1.88. Boss gained 12c to $1.61 and Lotus rose by 6c to $1.41 after reporting that output from its Kayelekera project in Malawi had been accepted for processing by French uranium converter Orano.
Lithium stocks continued their recovery as investment banks warmed to the prospect of a surge of sales of electric vehicles (EVs).
UBS asked in a note headed “How many EVs does it take to solve an energy crisis?” dodging a direct answer to its own question but concluding that the oil crisis should see a meaningful acceleration of EV adoption.
Pilbara Minerals, which has adopted the daft name of Pls, led the way up with a 54c rise to $5.42. Liontown rose by 9c to $1.81 and IGO put on 40c at $8.19.
The handful of stocks exposed to aluminium had a good week as the price of the lightweight metal rose towards US$3500 a tonne thanks to metal smelters in the Gulf being hit by Iranian missiles.
South32, which has aluminium and alumina interests, added 33c to $4.45. Bauxite miner Metro rose by 1c to 7.1c.
Rio Tinto, best known as an iron ore miner but with a major aluminium division, rose by $16.44 (11%) to $167, also benefiting from plans to “monetise” its electricity assets. Arch-rival BHP, which monetised its electricity interests last year, could only manage a rise of $2.06 (4%) to $52.55.
Other news and market moves in the first of two short trading weeks included:
- Fortescue, up 79c to $20.97 thanks to the iron ore price sticking to US$106 a tonne perhaps because iron and steel exports from the Gulf are trapped by the war but also because it is the most electrified of the big iron ore miners.
- Fenix, down 2c to 33c as pressure builds on tight diesel supplies at its WA operations.
- Aldoro Resources, up 6c to 46c after reporting high grade rare earth, niobium, and strontium mineralisation from the latest drilling at its Kameelburg project in Namibia.
- Hastings Technology Metals, up 7c at 50c after announcing the acquisition of a rare earth processing plant in Thailand, and
- Whitehaven Coal, up 24c at $9.23 thanks to strengthening demand for coal in Asia as oil supplies dwindle.
