Bearish outlook for A$ and global worries keep Aussie gold miners front and centre

Currency values, rather than commodity and share prices, have emerged as the key force in shaping financial markets over the rest of 2019
15th March 2019
Tim Treadgold

Currency values, rather than commodity and share prices, have emerged as the key force in shaping financial markets over the rest of 2019, with the likelihood of a continued decline in the Australian dollar ensuring increased interest in gold.

Westpac Bank this week joined the “dollar down” club with a forecast of a slide in the Aussie currency to US68 cents over the remainder of the year, and while that might not be a big fall from its current US70.8c it would lift gold above $A1900 an ounce.

At gold’s latest price of $US1303/oz, up a handy $US20 on this time last week when Prospector’s Diary predicted a gold-price bounce, the Australian gold price has moved back $A1840/oz. But if the currency slips to US68c, the local price rises to a record $A1916/oz.

Encouraging as the currency-effect might be for gold, the reason for Westpac’s pessimism is more concerning because it reflects an expectation of a significant slowdown in the Australian economy, which has already fallen from an annualised growth rate of 4% at this time last year to 1% in the second half of last year.

In time, the R-word (recession) will be back in the headlines as consumer spending slows further ahead of the May federal election and possibly drops another notch lower if/when there’s a change of government in Canberra.

What that boils down to is this simple observation; if gold isn’t on your investment radar screen today, it ought to be!

Deal flow in the gold sector was one of the news-making events of last week as was confirmation that China has joined Russia as a major gold buyer, with both countries busy shifting reserves away from exposure to the US dollar.

Over the past three months, China has bought 32 tonnes of gold, modest compared with Russia’s 274 tonne purchased last year, but a clear sign that money is moving out of traditional safe havens such as the US dollar into the ultimate safe haven of gold.

On the deal side of the gold market, it was Barrick and Newmont ending their open hostilities and striking a joint venture over their operations in the US State of Nevada which dominated gold news, though in Australia it was Newcrest’s move into Canada which caught the eye of local investors.

On the market, Newcrest got a tick of approval for the acquisition of the Red Chris gold project, with its share price rising 50c to $25.15. Most other gold stocks moved up by similar amounts. Northern Star added 23c to $9.08. Evolution gained 24c to $3.71, and Saracen was 15c higher at $2.82.

Commodity markets continued to show resilience in the face of global uncertainty, epitomised by the failure of the British Parliament to agree on exit terms from the European Union, the painfully drawn-out trade talks between China and the US and the return of the North Korean nuclear threat.

Despite those negative events, copper continued its move towards the $US3 per pound mark, nickel tried to breach the $US6/lb level reached 10 days ago and zinc moved back above $US1.30/lb for the first time since May last year.

Trends in the resources sector were not obvious this week but among the interesting developments were:

  • The continued slide of stocks which tried to play the nugget-gold game, with DeGrey and Artemis both falling to 12-month share-price lows. De Grey’s bottom was 7.6c reached on Tuesday before a recovery to 9c, while Artemis fell to a new low of 5c before climbing back to 6.5c.
  • One-time graphite star, Syrah, performed a similar trick as the nugget-gold stocks, dipping to a fresh 12-month low of $1.06 on Wednesday, before recovering to $1.14, and
  • Iron ore stocks continued to benefit from Brazil’s outage with Mt Gibson reaching a 12-month high of 86c on Monday before easing to 84c. Fortescue Metals also moved up, adding 30c over the past two days to trade at $6.55.

The next few months promise to be a tricky time for investors with background geopolitical issues sending a mix of positive and negative signals which are cancelling each other out.

Base metals (copper, zinc and nickel) are poised to move higher thanks to declining stockpiles but are being held back by the trade war.

Iron ore could surge higher by mid-year if Brazil isn’t back to full production and gold is on the sidelines waiting for a crisis, or the collapse of the US dollar as America’s debt level approaches the once unthinkable $1 trillion level.

Other news-making and market moving events of the past five trading days included:

  • Gindalbie Metals, after a wasted decade pursuing the dream of making money from processing low-grade magnetite iron ore, will finally disappear with shareholders getting 2.7c a share through a demerger deal with its Chinese partner, Ansteel, plus shares in a new company, Coda Minerals. On the market, Gindalbie more than doubled with a 1.5c rise to the takeover price of 2.7c.
  • Ausmex doubled with a rise from 7.8c to 16c after reporting the results of an encouraging geophysical survey on its Golden Mile prospect in Queensland. Last week, Ausmex reported assays up to 12.45 grams of gold a tonne over two metres from nearby drilling.
  • Strike Resources was a third stock to more than double this week with a rise from 4.2c to 10c after announcing the acquisition of a lithium brine project in Argentina.
  • Staveley Minerals added 2c to 31c after reporting fresh drilling encouragement from its Thursday’s Gossan copper and gold project in Victoria, which included a “whopper” intersection of 952m at 0.23% copper, starting just 11m from surface. At one stage, Staveley traded up to 34c.
  • Piedmont Lithium reported the best ever drill result from its Carolina project in the US, including 43.2m at 1.73% lithium, good enough to lift the stock by 2c to 12c.
  • Galileo reported modest nickel assays from drilling at its Lantern prospect in WA’s Fraser Range, including 21m at 0.05% nickel, plus 0.04% copper, a result which  rubbed 2c off the share price, which closed yesterday at 16c.
  • Altura Mining declared commercial mining at its namesake lithium project (previously called Pilgangoora), lifting the stock by 0.2c to 14.2c.
  • Sunstone Metals said it had mobilised a drilling rig for work at its Bramaderos project in Ecuador after receiving environmental approval. On the market, Sunstone added half-a-cent to 3.9c, and
  • Red 5 rose by 2c to 13c after reporting more encouraging assays from drilling a bulk mining target at its King of the Hills project in WA with a best hit of 122m at 3.03g/t.

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