Investors scurry for gold and nickel at the same time – but for very different reasons

Gold dominated financial markets and news flow this week as the world stumbled towards a significant economic slowdown
9th August 2019
Tim Treadgold

Gold dominated financial markets and news flow this week as the world stumbled towards a significant economic slowdown, but in the background were early signs of another metal on the move.

Nickel, which has been edging towards a price break-out for much of the year rallied strongly early yesterday, moving above $US7 a pound, and briefly trading at $US7.50/lb, its highest in more than four years, before settling around $US7.06/lb.

In early July, nickel was selling for $US5.30/lb which means that at its high point yesterday the metal had risen by more than 40% in two months.

Falling stockpiles, speculation of a renewed ban on exports of unprocessed nickel ore by Indonesia, and strong demand from stainless steel makers are the primary reason for nickel returning as a metal to watch, with the bonus being that battery makers are lining up for supplies.

It’s too early to call yesterday’s US50c/lb rise panic buying, though that is what ANZ Bank said last week might happen if a supply squeeze develops. A nickel shortage can produce spectacular price spikes, such as the $US22/lb price of 2011.

On the way up fortunes can be made, though the trick is to know when to sell and not many people get that right with a few oldtimers still lamenting the Poseidon shares they clung to after the 1969 nickel boom.

Nickel stocks reacted sharply to the latest price surge. Western Areas added 21c yesterday to reach $2.40. Independence rose by 32c to $5.40 and Mincor, which has finalised its nickel sales agreement with BHP, put on 8c to 54c.

If nickel was the star at the end of the week, the first few days were all about gold. This was hardly surprising given the annual Diggers and Dealers forum in Kalgoorlie which is always a gold-heavy event, or the latest angry shots in the China v U.S. trade war, which are helping destabilise currency markets and drive interest rates through the floor.

The combination of economic instability, falling rates and currency shuffles is a perfect recipe for a gold boom, and that’s exactly what seems to be happening with the price scaling the $US1500 an ounce mark during the week and the Australian price hitting a record $A2230/oz.

Over the next few weeks gold is tipped to rise a bit further with Citi, an investment bank, forecasting a gold price of $US1525/oz in September.

Gold stocks moved higher, but not as rapidly as might have been expected perhaps because many had moved up ahead of the bullion price and this week was catch-up time.

Leading local producers all gained ground, some substantially but others only just. Evolution, for example, added just 11c over the week to reach $5.47, though looked at over the past month, the stock is up $1.10. Northern Star rose by 89c to $13.57, but is actually still 49c below its all-time high of $14.06 reached late last month.

Other gold moves included: Saracen, up 20c to $4.70. Regis, up 42c to $6.15. Bellevue, up 5c to 64c. Gold Road, up 24c to $1.62, and Dacian, up 14c to $1.07, a very handy 180% increase on the stock’s low point of 38c reached just two months ago.

Diggers and Dealers, which is always a well-followed event and perhaps the best organised mining conference in the world (believe it or not), produced a mixed bag of share-price moves with roughly half the companies presenting posting modest rises and half losing ground.

Gold stock led the way up. Base metals and battery stocks led the way down with the nickel rise surge coming after the close of the conference.

Away from Diggers and Dealers, about which enough has been written this week, there were a number of other interesting developments which will shape the market in coming weeks, including:

  • Australia moving tantalisingly close to its first current account surplus in 44 years thanks to surging exports and declining imports and while not many people think about big issues such as the current account it could have an interesting effect on the exchange rate – perhaps reversing the recent downward trend.
  • Capital raisings surged last week with multiple small share issues indicating an improving appetite for resource-stock risk with raising by companies such as Galan ($2 million), Coziron ($3 million), Alt ($4 million),Titan ($6 million), Salt Lake Potash ($150 million in project finance), Anglo Australian ($1.4 million), Red 5 ($20 million) and Liontown with its $18 million raising late last week.

Other news and market-moving events during the week included:

  • Galaxy said it would take a hefty ($US150 million to $US185 million) impairment charge against its lithium assets because of concern about the carrying value of inventory and its lithium-producing assets, a move which failed to dent the share price which hung on to $1.26 though the write-down of lithium assets could be the start of a trend.
  • Westgold Resources added 32c to $2.24 after announcing a plan to demerge its polymetallic assets which include the Rover 1 copper discovery in the Northern Territory.
  • Apollo Consolidated reported fresh drilling success at its Lake Rebecca project near Kalgoorlie with a best intersection of 29 metres at 4.1 grams of gold a tonne from a depth of 234m. On the market, Apollo added 5c to 28c.
  • Kingsrose Mining continued its recovery with a 1.3c share-price rise to 5c after reporting the resumption of ore processing at its Way Linggo project in Indonesia.
  • Bellevue Gold, as mentioned earlier, added 5c to 64c after its latest drilling results which featured 3.6m at 18.3g/t from 654m.
  • Myanmar Metals received a less-than sparkling response to a report that it now has a 100 million tonne resource in its Bawdin zinc and lead project in Myanmar. An initial share-price rise of 0.4c was cancelled out with the stock closing steady at 5.8c.
  • Danakali said it had received credit approval to help pay for a power station planned at its emerging Colluli potash project in the North African country of Eritrea, news which lifted the stock by 6.5c to 74.5c.
  • Lucapa reported the recovery of a high-quality 64 carat gem from its Mothae diamond project in Lesotho and the receipt of $8.8 million from diamond sales. On the market the stock was steady at 16c, and
  • Neometals added 1c to 19c after reporting encouraging results from drilling at its Mt Edwards project near Kambalda in WA including 11m at 2.6% nickel from a depth of 108m, with a 4m section assaying 6.3% nickel.

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