Gold tipped to shine for some time as trade war and political crises roll on

Gold first. Daylight second. Those four words perfectly sum up the state-of-play on the Australian stock market as more investors join the flight to safety while the international geopolitical and trade backdrop worsens.
11th October 2019
Tim Treadgold

Gold first. Daylight second. Those four words perfectly sum up the state-of-play on the Australian stock market as more investors join the flight to safety while the international geopolitical and trade backdrop worsens.

A measure of the gap between strongly performing gold (and goldminers) could be gleaned from a unique mid-week piece of research by Macquarie Bank which looked at the damage done by the China v US trade war and past crises.

While not yet as bad as the global financial crisis of 2009, there is a consistent pattern of industrial commodities being sold off and precious metals rising or holding their ground – with a few significant differences.

Copper at $5662 a tonne (the price earlier this week when the comparison was run) is down 23% on its pre-trade-war price of $6955/t. Aluminium is down 30% and zinc is down 33%.

Gold, as you might expect, is up 15% -- but so is nickel as it rides a wave of investor interest in a metal which has suddenly developed a second major market, adding batteries to its traditional use in stainless steel.

Most importantly, Macquarie’s view is that what you see today is likely to persist for some time as the trade war is joined by the uncertainty of the attempt to impeach the US President, Donald Trump, and Brexit approaches a make-or-break point for the British Prime Minister, Boris Johnson.

All that is music to gold as shown in this week’s move back above $US1500 an ounce and with the release of a report from the World Gold Council which revealed a record flow of cash into gold-backed exchange-traded funds.

During September, the gold ETF inflow reached a remarkable $US3.9 billion, which represented an increase of 75.2 tonnes, taking the total holdings by the funds to 2808 tonnes, which means private investors now own roughly the same amount of gold as the International Monetary Fund and more than Russia, France or Italy – but well short of the US with its 8133 tonnes.

Citi, an investment bank, said in a note published this week that gold-ETF inflows were likely to persist, particularly from Asia, as the gold price moved up to around $US1575/oz over the next three months and then up to a target of $US1700/oz over the next six-to-12 months.

The stronger gold price was reflected in local share prices, with the gold sector the only consistent improver, even though most moves were modest.

Evolution added 9c to $4.70. Dacian was up 4c to $1.49 and Northern Star gained 29c to $11.99 – but with Macquarie tipping a future price of $16 thanks to the potential for a big increase in production from the Pogo mine in Alaska.

Breaker Resources was another gold stock in the news after reporting the receipt of unsolicited inquiries about a deal involving its Lake Roe project in WA. On the market, Breaker added 3c to 35c but Bell Potter maintained its 73c price target and named Saracen (up 20c to $3.78) as the most likely partner with Breaker, or possibly Silver Lake (down 3c at 92c).

Other gold news and market moves included:

  • Bardoc Gold added 0.3c to 10c after reporting more high-grade hits from drilling at its El Dorado prospect within the broader Bardoc project in WA, with a best intersection of 28 metres at 13.59 grams a tonne from 176m, with a 6m zone at 57.7g/t.
  • Navarre Minerals said drilling had started at its promising Stawell Corridor project in Victoria, focusing on previously identified areas of high-grade mineralisation that included intersections of 7.1g/t over 18.7m and 6.2g/t over 10.6m. On the market, Navarre added 1c to 12c.
  • Resolute fell 13c to $1.27 after reporting a plant shutdown at its Syama mine in Mali caused by the detection of a crack in a roaster which is used to recover gold from sulphur-rich ore.
  • Westgold Resources also reported problems at one of its projects with a new bearing required for the mill at the Bluebird mine in WA. The replacement equipment is expected to be fitted late next week. On the market, Westgold was steady at $2.43.

It was hard to find many non-gold positive events.

Iron ore stocks continued to weaken as the price of the steel-making material eased under the pressure of increased exports from Brazil.

Fortescue Metals earned a few headlines by signing up for a slice of the undeveloped (and ill-fated) Simandou iron ore prospect in the West African country of Guinea. The company’s African adventure failed to impress as Fortescue’s share prices slipped 35c to $8.47.

Rare earth stocks, which should have had a good week thanks to speculation about the US and Australian Governments putting their weight behind new projects, failed to react.

While there was a lot of talk about rare earths in Canberra and Sydney, the market reality was a 4c fall to $2.61 by Lynas, the sector leader, and no price movement by other players in that space including Arafura, Hastings, Northern Minerals and Peak Resources.

Stavely Minerals, last week’s star, reported more highly-encouraging assays from drilling at its Thursday’s Gossan copper/gold project in Victoria but failed to move the market, perhaps weighed down by profit-takers after its stellar run from 24c to a peak on Tuesday of $1.40. By the close yesterday, Staveley was back to $1.08, down 1c on this time last week.

Other events and market moves (all modest), included:

  • Ausmex reporting what looks to be a significant drill intersection at its Little Duke copper project in Queensland, including 101m of IOCG (iron ore, copper, gold) mineralisation. Assays are pending but earlier drilling in the same hole (before it got bogged at 48m) returned assays of 6m at 0.5% copper and 1.3g/t of gold and 17m and 1.2% copper and 4.1g/t of gold. On the market Ausmex initially rose by 3.5c to 12c before easing back to 10.5c.
  • Talga continues to make encouraging progress with its Swedish graphite and battery anode project, appointing Macquarie Bank to advise on strategic partners and financing options. The stock added 8c to 54c.
  • RBR Group firmed modestly to 1.4c following news that US oil giant ExxonMobil has made an initial investment decision on its $US20 billion Rovuma LNG project in Mozambique. RBR is poised to benefit from providing skilled labour and other services to the country’s emerging LNG industry.
  • Lucapa sold diamonds valued $15.5 million from the latest offering of gems from the Lulo and Mothae projects. On the market the stock firmed by 1.5c to 15.5c.
  • Liontown reported more encouraging drill intercepts from its Kathleen Valley lithium project, including 29m at 1.3% lithium from 256m. The stock eased back by 0.4c to 9.1c, and
  • Strandline moved 1c higher to 11c after announcing progress on a potential funding arrangement with an Australian Government infrastructure fund.

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