Iron ore and copper lead way but gold poised to rebound as US trade position deteriorates

8th March 2019
Tim Treadgold

Gold played second fiddle to industrial metals this week with copper, nickel and iron ore doing best despite the rolling uncertainty of the China v US trade war. But in the background was an event which could see gold perk up next week.

The US, which owns the currency which sets the gold price, has reported its worst trade result in 10 years and while currency investors were not spooked by 2018’s $US621 billion deficit with the rest of the world, it might not be long before the penny drops.

Quite simply, the US economy is slipping when measured against other economies and that’s not what the President, Donald Trump, promised when he started his trade war. The aim was to boost exports to China and limit imports from China.

It hasn’t worked, yet, and while the game might change, those 2018 trade numbers cover around 10-months of the trade war and it’s fair to say that at this stage it appears to have backfired with exports growing by 6.3%, outweighed by a 7.5% increase in imports.

Trade is one factor in determining currency values. Interest rates are another. But with trade going the wrong way, an interest rate increase might lift the US dollar – except the President has effectively instructed the US central bank, the Federal Reserve, to not raise rates, with a cut his preference.

If US interest rates do fall at the same time that trade is going the wrong way, there really is only one way for the US dollar to go, and that’s down. And that means gold will rise -- unless there is an almighty global economic crisis, in which case the dollar rises, but so does gold as its safe haven role kicks in.

All of this is, of course, a currency/gold theory in a nutshell and a lot could change to vary the outcome. But it was significant that international markets yesterday saw a move by investors into a haven considered as safe as gold, US Treasury Bonds, which fell as traders quit some of their equity positions for the modest (but safe) yields offered by government bonds.

Most Australian gold stocks lost ground this week as the metal’s price slipped from $US1315 an ounce to $US1286/oz, taking the Australian gold price down from $A1852/oz to $A1824/oz, with the local fall eased by a slide in the value of the Australian dollar.

Northern Star slipped 38c to $8.78 and Evolution was down 15c to $3.44, while Newcrest swam against the tide with a rise of 44c to $24.66, perhaps aided by its position as a potential winner from the takeover struggle being waged by the two international gold giants, Barrick Gold and Newmont Mining.

In New York, where the Barrack v Newmont game is being played, Barrack lost a little ground with a US10c slide to $US12.40 over the past week. Newmont did worse with a 78c fall to $US33.14.

Among the industrial metals, it was hard to miss what’s happening in iron ore and the mineral which is only mentioned in hushed voices these days: coal.

The benchmark iron ore price settled at around $US87 a tonne as the impact of the Brazilian dam collapses continued to reverberate around the mining world.

Citi, an investment bank, is tipping a price of $US100/t later this year as an iron ore shortage developes, caused by the loss of an estimated 81 million tonnes of material a year from Brazil, about 4% of the global market.

Macquarie Bank agrees, up to a point, seeing upward price pressure on iron ore as Chinese steel mills re-stock after allowing stockpiles to run down in the weeks after the Brazilian incidents in the belief that the effects of the event would be short-lived.

On the ASX, pure-play iron ore stocks have been among the best performers. Fortescue this week added 47c to $6.60. Mt Gibson hit a 12-month high of 86c before easing to 82c for a week’s gain of 6c, while born-again Brockman added 1.3c to 7c.

Champion Iron, an ASX-listed iron ore player with its major assets in Canada, stood out early in the week with a rise to a 12-month high of $2 before easing to $1.83 for a rise of 2c.

Coal, for investors prepared to follow Gina Rinehart’s full-blooded plunge deeper into a politically incorrect mineral, moved higher as demand outweighed supply for both metallurgical (steel-making) material and thermal, thanks almost entirely to Chinese demand.

Among local coal stocks Stanmore did best, reaching a 12-month high of $1.36 on Monday before easing to $1.24 for a gain of 4c. New Hope performed the same trick, reaching a 12-month high of $4.32 early yesterday before easing to $4.25 for a modest gain of 1c.

Nickel charged up to a six-month high of $US6.13 a pound as shrinking stockpiles finally rang alarm bells among stainless steel makers and investors. At the start of the year, nickel was selling for $US4.60/lb.

Independence was the winner among local stocks exposed to nickel, adding 26c to $4.98. Mincor was unmoved at 37c, as was Panoramic, though its shares were under a voluntary suspension while a capital raising is undertaken to meet the needs of a slower-than-expected re-start at the Savannah mine.

Copper, the base metal star, had another good week with the price moving tantalisingly close to the $US3/lb mark, backed by a forecast from Citi that $US3.08/lb is the next target, and $US3.40/lb is the new long-term price.

Local copper stocks were a mixed bag. OZ Minerals added 16c to $10.32 while Sandfire slipped 9c lower to $7.17. Both stocks claimed a place on Citi’s global copper-stock recommendation list with OZ said to be heading for a price target of $12.50 and Sandfire on the way to $8.40.

With international events weighing heavily on investor sentiment and most of Australia’s mining industry leaders in Canada for the annual Prospectors and Developers of Canada (PDAC) conference in Toronto, local news flow and market moving events were skimpy, to say the least.

Price moves of note, and developments not mentioned earlier, included:

  • St George Mining adding 3c to 17c after reporting geophysical encouragement ahead of a drilling program at its Fairbridge nickel and copper prospect near Leonora in WA.
  • Capricorn Metals added half-a-cent to 7.5c after a major boardroom shuffle that saw three directors leave and two appointed.
  • Artemis, one of the earlybird players in WA’s nugget-gold hunt, continued to weaken despite reporting an upgrade in the gold, copper and cobalt resource at its Carlow Castle project. The latest slide of half-a-cent to 6.4c takes the fall since last September to 16.3c, or 70%.
  • Peel Mining eased back by 1c to 48c despite reporting more encouraging assays from its Southern Nights base metals project in NSW with a best hit of 33m at 11.71% zinc, plus 5.65% lead and useful readings of copper, silver and gold.
  • Troy Resources report a gold assay of 64.86 grams a tonne over 2m from a depth of 15m at its Ohio Creek project in Guyana, but one the market the stock slipped 1c lower to 9.9c, and
  • Heron Resources was unchanged at 58c despite reporting that process plant commissioning had started at its flagship Woodlawn base metals project in NSW.

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