The core issues are obvious – war in the Persian Gulf, which produces 20% of the world’s oil, and an oil-price price rise back above the psychologically important US$100 a barrel after the latest Iranian attack on oil carriers.

An extension of the concern is that a wounded Iran could run an indefinite nautical guerilla campaign taking shots at oil carriers as they try to sail out of the region, or even as they ride an anchor, using low-cost remote controlled dinghies packed with explosives.

Blocking the Strait of Hormuz has always been Iran’s “scorched earth” fall back if attacked, a plan which appears to be unfolding with no easy fix for the U.S. and its bombastic president Donald Trump.

For Australian investors, the past week was a roller coaster ride with a 2.5% fall in the all ordinaries index taking the overall market back to where it was at the start of the year.

But it was gold which best told the story of costs, which is the key to the next phase for financial markets as they battle with an oil price over US$100bbl and perhaps heading into the stratosphere of more than US$200/bbl, a real economy stopper.

The gold price, unsurprisingly at a time of war, was effectively steady this week at US$5153 an ounce, rising briefly to US$5230/oz before easing.

Gold miners, burdened by the costs associated with the rising oil price and fears of a diesel drought, slumped by 11.3% as measured by the ASX gold index.

Sector leader Northern Star was hit hard, down $2.11 (7.4%) to $26.49, a fall in the face of a steady gold price explained by the cost of diesel consumed by haul trucks climbing out of deep mines such as the Fimiston pit in Kalgoorlie.

Other gold moves included Evolution, down $1.46 (9.5%) to $13.91, Capricorn, down $1.25 (9%) to $12.56 and Westgold, down 77c (11%) to $6.25 despite an upbeat report from Macquarie Bank which sees the stock rising to $9.50.

It wasn’t all down in the gold sector with a handful of positive moves that included:

  • Ora Banda rising by 13c (9%) to $1.49 after reporting an increase in gold at its Davyhurst project in WA. Macquarie Bank reckons the stock is heading up to $1.70.
  • Torque Metals rising by 19c (60%) to 51c after announcing that it had recruited a team of former Spartan Resources executives to develop its Paris gold project in WA, and
  • Sunstone Metals rising by 2c to 41c after reporting another thick gold and copper intersection at its Bramaderos project in Ecuador.

Despite those promising rises, the overall trend among gold stocks was down with falls that included Pantoro, down $1.59 (30%) to $3.67 after reporting downgraded production guidance after flooding in its mines.

Optimism about a gold sector recovery can still be found despite the wider economy being weighed down by rising costs, including forecasts of an interest rate hike as early as next week.

Adrian Ash from London-based BullionVault said gold tends to revalue (rise) when the world becomes a more dangerous, more unstable, and less predictable.

‘What the latest tensions around Iran underline is that investors are once again confronting the possibility of wider geopolitical disruption, higher energy prices and renewed inflation risks,” he said.

“When several of those pressures appear at once gold historically doesn’t just rise. It reprices.”

If there was a best sector in a week of growing uncertainty that description belongs to rare earths thanks to an updated deal between Lynas Rare Earths and “Japan Inc” which included a guaranteed US$110 per kilogram price for NdPr (neodymium/praseodymium) the most widely used material to make permanent magnets.

A syndicate led by the Japanese Government and a group of the country’s trading houses offered to pay Lynas at the same price the U.S. Government is paying California’s MP Materials.

In exchange, Japan gets priority access to Lynas material, including heavy rare earths which the company has recently started producing.

Announcement of the deal saw Lynas rise by $2.42 (13%) to $20.75 but with some investment banks tipping an even higher future price thanks to the importance of the company’s close ties with Japan.

Morgan Stanley has a “bull case” for Lynas on its books at $28.75. CG Capital Markets has $22 as its target while UBS went against the rising tide by sticking with $17.70.

The Lynas deal with Japan delivered a welcome uplift to most stocks exposed to rare earths with moves that included:

  • Brazilian Rare Earths, up 19c to $5.24 after reporting an extension of its Sulista project in Brazil.
  • St George Mining, up 2c to 15c after reporting the development of a downstream strategy to upgrade the magnet and heavy rare earths in its Araxa project in Brazil, and
  • Iluka, up 40c to $6.70 as it pushes ahead with its rare earth processing project in WA.

Copper stocks were sold off thanks to concern about the impact on global growth (and hence copper demand) from the rising oil price, and the rising cost of sulphuric acid needed to treat copper ore.

Barenjoey, a fast-growing investment bank, said the latest commodity market signals pointed to a “loss of momentum” in Chinese demand for copper which has weighed on the price of the metal.

But even as copper held on to an attractive price of US$5.84 a pound, most copper miners lost ground, almost certainly as a result of investors allowing for cost increases which will follow the rising oil price.

Barrenjoey said it was forecasting a copper price for later this year of US$6.15/lb, easing to US$6/lb next year.

The banks preferred copper producer is Sandfire which is tipped to reach $20 despite this week’s fall of 93c to $16.61.

Other copper moves included Capstone, down $1.47 to $11.65. FireFly, down 23c to $1.74 and Aeris, down 2.5c to 47c.

Lithium stocks, which will ultimately benefit from rising demand for electric vehicles as the oil price bites, had a mixed week with producers edging higher and explorers fading.

Liontown, which reported a solid half-year financial result, led the way up with a rise of 9c to $1.58. Pls rose by 2c to $4.75 while Pmet slipped 4.5c lower at 48c and Core lost 2c to 23c.

Iron ore, despite repeated forecasts of a price crash as Chinese steel production peaks and African ore is landed in China, rose by a US$4 a tonne to US$103/t, an increase which could reflect higher shipping costs and the loss of iron ore pellets stuck in the Gulf, much like aluminium, which is being stockpiled by Gulf smelters.

Uranium stocks were marked down heavily, not because of the metal’s price but more because of a global shortage of sulphuric acid which is a major by-product of Middle East oil production.

U-moves moves included Paladin down 44c to $11.83. Bannerman, down 26c to $3.95. Boss, down 5c to $1.58 and Lotus, down 34c to $1.57.

Other news and share prices included:

  • Pioneer Minerals, up 2c to 21c after reporting the development of a simple gravity separation process for producing high-grade concentrate from its North Pine tungsten mine in the U.S.
  • Sky Metals, up 1.5c to 18c after reporting high-grade drilling and rock chip sampling of tin at its Tallebung project in NSW.
  • Nickel Industries, down 2c to 90c thanks to investor concern about the supply of sulphuric acid to its Indonesian operations. Bell Potter is sticking with a future price for the stock of $1.45, and
  • Metals X steady at $1.32 after reporting a solid full year profit of $105 million from its tin operations. CG Capital Markets lifted the stock forecast from $1.35 to $1.50.