Gold, along with copper, oil and silver, are being driven by growing investor confidence in the start of an overdue fall in U.S. interest rates and the promise of a soft global economic landing after the Covid crash and awkward recovery.
Whether today’s market bounce is another false start remains to be seen because we’ve been here before in a regular pattern of one step forward followed by a step back.
The difference this time is that the chairman of the U.S. central bank, Jay Powell, said mid-week that he was sticking with a plan to start cutting rates this year.
“The recent data do not materially change the overall picture, which continues to be one of solid growth, a strong but rebalancing labour market and inflation moving down to 2% on a sometimes bumpy path,” Powell said.
Left unsaid was when he might make the first cut, and how many can be expected before Christmas (or November’s U.S. presidential election), but even without the detail, money is moving into sectors which have most to gain from lower rates – with gold at the top of that list.
Leading investment bank Morgan Stanley gave its clients an early guide to what can be expected in the Australian resources sector as lower rates edge close and supply disruptions tighten commodity markets.
“Time to shine” was the bank’s forecast for gold with “tailwinds” expected to be in place for the rest of the year, including central bank buying and a pick-up in jewellery sales in China.
Gold stocks at the top of Morgan Stanley’s buy list are Evolution (which has risen by 31c to $3.83 since Easter), Regis (up 7c to $2.01) and Northern Star (up 83c to $14.81).
Evolution also scores a mention on the bank’s base metal winners list rates thanks to its acquisition last year of an 80% stake in the Northparkes copper/gold mine in NSW.
Nickel Industries is seen as another rates winner by Morgan Stanley, up 10c this week to 85c, 29Metals up 11c to 50c, and South32, up 27c to $3.14 are also on the base metals buy list.
Mineral Resources, Pilbara Minerals and IGO are top of the bank’s lithium list as the price of the battery metal approaches a floor, but “patience is the key” for investors looking for a way back into the metal.
Morgan Stanley said a lithium entry point should emerge as the global economy strengthens, led by the U.S. and China, and with that recovery it seems highly likely that copper will be the big winner, not just from traditional industrial and electric vehicle demand but also from expansion of power grids.
J.P. Morgan, another big investment bank, focused on power grids in a global research report published yesterday which looked at the effect of artificial intelligence (AI) on demand for electricity.
“Our analysts note that global grid/electrical equipment makers across the U.S., India, Korea and Europe have rallied by between 20% and 140% year to date,” J.P. Morgan said.
Unsaid by J.P. Morgan is that almost every piece of new electrical equipment used in a grid or in a device needs copper and with a shortage developing, the price appears poised to follow gold up to record levels.
FireFly Metals was the pick of the copper crop this week with a rise of 8c to 78c as interest grows in its Canadian exploration project. Shaw and Partners reckon the stock is heading up to $1.10.
Other copper moves included:
- Hammer Metals gaining 1c to 4.6c after announcing a plan to sell a 70% interest in three sub-blocks at Mt Hope in Queensland to Carnaby Resources for up to $20 million.
- Hillgrove reporting increased copper production from its Kanmantoo mine in South Australia. The stock gained 1.7c to 8.2c, and
- Minerals 260 slipping 1c lower to 16c despite reporting further encouraging drilling result from its Moora project in WA’s wheatbelt.
Overall, the Australian market has struggled in the short week after Easter, rising by a marginal 0.4% as measured by the all ordinaries index. The mining index has done better with a rise of 2.7% while gold led the way thanks to that record price, with the ASX gold index up 7%.
Apart from the gold leaders mentioned earlier, there were reasonable performances from De Grey, up 9.5c to $1.32. Bellevue, up 5c to $1.92. Ramelius, up 16c to $1.95. Gold Road, up 7c to $1.64 as production recovers from regional flooding, and Calidus, up 3c to 14c as it increases gold output.
Gold discovery and development news was led by Regis, which rose by 9c to $2.02 despite reporting a cost blow-out at its McPhillamy project in NSW, and Astral which rose by 0.2c to 6.2c after reporting high grade hits from drilling at its Kamperman project in WA with a best assay of 13 metres at 3.95 grams a tonne from a depth of 35m.
Lithium, the love/hate metal of the past 12 months continued its grinding revival this week but there could still be a long way to go as electric vehicles (EVs) cop a bashing at the hands of consumers who dislike range anxiety and slow recharging stations, if they can find one.
Donald Trump, the early favourite in the U.S. presidential race, was sharply critical of EVs this week, piling pressure on car dealers which will eventually flow up the food chain to lithium miners.
Winsome Resources was the big lithium winner this week rising by 16c (19%) to 99c after announcing plans to buy a mothballed diamond processing plant in Canada and re-shape it as a lithium processing plant for its Adina orebody.
Local lithium leader Pilbara shook off the uncertainty with a rise of 8c to $3.84, as did emerging producer Liontown which gained 9c to $1.24. Biggest lithium loser was Vulcan which lost 15c to $2.76.
Nickel, the sick man of mining, managed a 4% price rise over the week though at US$17,163 a tonne it’s not out of the woods given the US$25,000/t price of 12-months ago.
Nickel Industries, mentioned earlier with a 10c rise to 85c, led the modest recovery which also saw Cobalt Blue, which is working on a nickel/cobalt refinery plan, gained 2c to 16.
ANZ Bank stirred the nickel pot with an upbeat research note late last week which said a feared Indonesian “nickel deluge is not inevitable” as more producers drop out of the depressed market and pressure grows on Indonesia to clean up its dirty nickel industry.
Uranium stocks had a better week thanks to a 4% rise in the price of the metal which last traded at US$88.50 a pound.
Boss was the pick of the U-stocks with a rise of 36c to $5.12 after it reported that the first drum of uranium from its Honeymoon well project would be produced soon.
Paladin chimed in with a rise of 11c to $1.49 as it also edged closer to first drums of uranium from its Langer Henrich project in Namibia. Bell Potter lifted its target price for Paladin from $1.60 to $1.65.
Rare earths specialist Australian Rare Earths got a solid boost of 2.5c to 13c after announcing a deal to possibly acquire the Overland uranium project in South Australia, and Alligator Energy gained 1c to 6.4c after reporting progress on its Samphire project, also in SA.
Other news and market moves of interest this week included:
- Fortescue Metals easing by 18c to $24.79 as the iron ore price slipped to US$102 a tonne. Royalty earner Deterra went the other way with a rise of 21c to $4.89.
- Develop, a zinc and copper project developer, added 2.5c to $2.38 after announcing an improved financial forecast for its Woodlawn project in NSW.
- Estrella Resources rose by 0.01c to 0.06c after reporting high-grade manganese assays from exploration in East Timor.
- Whitebark Energy added 0.1c t0 1.5c after announcing an expansion of its hunt for geothermal energy in south-east Queensland, and
- Whitehaven Coal added 52c to $7.16 after completing the acquisition of the Daunia and Blackwater mines from BHP. Bell Potter lowered its price target from $7.65 to $7.55.