Gold storms back as trade war confusion rattles markets

7th December 2018
Tim Treadgold

Gold stormed back to the top of the Australian investors’ hit parade this week as the rolling chaos caused by the US President, Donald Trump, infected bond markets with a shock fall in interest rates – driving investors to an overlooked safe haven.

Trump’s confusing “love you, love you not” signals to China about future trade-war salvos rattled global confidence, leaving analysts perplexed about which way to turn.

Highlighting the uncertainty, and reinforcing the case for gold, was a five-point scenario forecast from Macquarie Bank immediately after the G20 summit of political leaders in Argentina.

The fact that a leading investment bank needed to construct a road map which forked off in five possible directions made the point that no-one really knows what comes next, and they certainly don’t know what Trump will do next.

Top of the Macquarie five-pointed map was a delay in the trade war, a possible event seen as neutral to bearish. Next came a trade war resolution (bullish), followed by trade war resumes (bearish), China policy changes (bearish) and China stimulates its economy (bullish).

Little wonder with that mangled message that the gold price moved up from a low of US$1217 an ounce at the end of last week to latest trades at US$1239 an ounce.

Australian gold producers did even better thanks to a slip in the value of the local dollar to US72.3 cents, which propelled the Australian gold price over the A$1700 an ounce mark, to last trade at A$1715 an ounce.

That price rise was reflected, though not convincingly, in the share-prices of ASX-listed gold miners with the modest reaction potentially laying the groundwork for something stronger if the migration back to gold accelerates, a possibility given the unexpected fall in the interest rate on US 10-year bonds and the near certainty of more Trump trouble.

Northern Star, one of the local gold favourites, added 25c over the week to $8.20. Evolution put on 13c to $3.26. Saracen gained 17c to $2.61 and St Barbara rose by 19c to $4.39.

Not doing as well was Gold Road which has moved to within six months of the first pour at its Gruyere project in WA, and this week announced an upgraded annual output estimate of 300,000oz versus the original 270,000oz. It crept up by 1c to 62c.

Resources sector news flow during the week was mixed, at best.

Lynas Corporation led the way down after receiving a mixed review of its rare earth business from the Malaysian Government, which approved the company’s processing operations but demanded the construction of a permanent waste storage facility on the export of all waste to another country, a decision which rubbed 60c off the stock which closed at $1.68.

BHP and Rio Tinto continued to generate investor interest in their recent copper discoveries despite a lack of detailed knowledge about what BHP might have found, and no indication at all from Rio Tinto, except confirmation that it is beefing up its flow of services into the Paterson Range of WA.

Most exploration companies which had been benefiting from being close to the BHP and Rio Tinto projects fell back this week, led by Antipa which is working with Rio Tinto and has claims around its project, not good enough to prevent a small slide of 0.2c to 2.8c.

Aeris, which is getting ready to drill its claim close to BHP’s South Australian discovery, lost 2c to 18c. Marindi, which has expanded its Paterson footprint, slipped half-a-cent lower to 0.5c. Sipa, another stock with extensive Paterson exposure, was 0.3c weaker at 0.7c, and Cohiba, which is working close to BHP’s discovery, shed 0.4c to 1.6c.

Other news events which moved prices, up or down, included:

  • Macquarie Bank upgraded its gold production estimates for the Fosterville mine of Kirkland Lake in Victoria from 90,000oz in the current quarter to 110,000oz thanks to the high-grades being recovered. On the market, Kirkland Lake added $2.30 to $30.21, well short of Macquarie’s price target for the stock of $41.
  • West African raised $43.2 million through a share placement at 25c a share. The fresh funds mean the company’s Sanbrado gold project in Burkina Faso is fully-funded with a credit facility of US$200 million in place. Issuing the 172 million new shares saw West Africa’s drop 5c to the issue price of 25c.
  • Orion Minerals launched an airborne electromagnetic survey around its emerging Prieska zinc-copper mine redevelopment in South Africa, with its share price moving by 0.7c (35%) to 2.7c.
  • Danakali rose 2c to 79c after announcing the signing of a mandate with several lenders to provide US$200 million for its Colluli potash project in the north African country of Eritrea.
  • Musgrave Minerals added 1.9c to 9.9c after reporting high-grade assays from its Lake Austin North project within the company’s flagship Cue project in WA. Best results included a thick zone of 242 metres grading 1 gram a tonne from 61m, and 45m at 3.3g/t from 70m.
  • S2 Resources moved up by 0.4c to 9.4c after the release of a positive research report by the stockbroking firm of Bell Potter which reckons the stock is heading to 32c over the next 12-months.
  • Red 5 gained 1c to 7.6c after reporting a maiden resource of 1.9 million ounces from the Eastern Margin Contact at its King of the Hills gold project in WA.
  • Talisman Mining fell 7c to 23c, largely as a result of the company paying a special dividend designed to return $11.8 million to shareholders.
  • Explaurum lost 0.6c to 8.6c after announcing the receipt of advice that a takeover offer from Ramelius Resources was neither fair nor reasonable and that shareholders should approve a separate deal with Alkane Resources, and
  • Syrah Resources said production at its Balama graphite project in Mozambique was improving, though apparently not quickly enough for investors, who rubbed another 6c off the company’s share price to $1.58.

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