It is bond investors trading in government debt who hold the real firepower in financial markets, enough to break national budgets by selling bonds, driving up the cost of debt, and potentially forcing currency devaluations.

Britain is seen as the country most likely to crash into a debt and currency crisis, as it has in the past, with the yield on its 10-year bonds rising to a punishing 5.2% on Tuesday before easing to 4.99%.

But if Britain succumbs to a raid by vigilantes of the sort mounted by multi-billionaire George Soros when he crashed the pound in 1992 with massive short-selling attack then the problem of excess government debt could spread globally. 

Australia has also slipped into the danger zone of a 10-year government bond yielding more than 5%, the highest in 15 years and a measure of investor concern that the government has made a mess of its budget and also has an emerging unemployment problem.

But it’s the U.S. which is being watched most closely because its 10-year bond edged closer to 5% this week while its 30-year bond cruised past that mark to reach 5.2%, the highest since 2007, which was the start of the global financial crisis.

Investor concern about interest rates and the potential for a significant correction in share prices remains high thanks to the toxic mix of high rates and a see-sawing oil price which rose early this week to US$113 a barrel before sliding to US$105/bbl.

A simple test of the interest rate puzzle for investors is to consider the relative appeal of the risk/reward in equities versus the certainty of the 5.25% offered yesterday by Westpac Bank on a two-year term deposit, or 5.2% for 12-months.

The overall effect on the Australian market of rates v risk was a week in two halves, down early before a late recovery with the result being a decline of less than 1% in the all ordinaries index.

It was a similar story in the mining sector where early weakness gave way to a recovery with the metals index up 2.6% yesterday but still down 5.7% for the week and the gold index up 1.5% yesterday but down 11% for the week with gold suffering extra pain because in its bullion form it doesn’t pay interest, a significant disadvantage at a time of rising rates.

If there was a theme for the week it was the one this column has been banging on about for the past year, energy, in all its forms.

Events in the oil market, for example, have been spilling over into coal, which is making a return after serving time in the sin bin, and lithium, which continues to rise after its two years on the sidelines.

Oil leaders Woodside and Santos moved higher with the oil price, up 2.5% and 3% respectively, while coal leaders Whitehaven and New Hope did better, rising by 4.7% and 6% respectively, helping the energy index gain 3% over the week, taking its gain this year to 25%.

The importance of energy as an investment theme was magnified mid-week in a research report from investment bank Goldman Sachs into the massive power requirements of the next generation of artificial intelligence (AI) so-called Agentic AI – autonomous, “always on” systems.

Agentic AI, according to Goldman Sachs, will require the modernisation of data centres, power generation and electricity grid infrastructure, advanced cooling, and high-voltage components.

“Agentic tools are anticipated to be 60-to-130 times more energy intensive than AI chatbots, necessitating a fundamental infrastructure rebuild,” the bank said.

If Goldman Sachs is right, then two events are likely to occur: a shift “downstream” in AI investment opportunities into the provision of basic services such as electricity and grid connections, and a dreadful dawning for the renewables-only cheer squad that their favorite power systems, wind and solar, might not be able to meet Agentic AI demand.

For Australia’s Energy and Climate Change Minister, Chris Bowen, the emerging era of energy-hungry Agentic AI will be something for him to think about as he gets ready for his time in the sun as president of the climate change (COP 31) conference in Turkey in November.

Lithium got a price boost during the week, up 6.7% in China, driven by demand for electric vehicles and battery storage systems and by a bullish prediction from one of China’s top lithium executives regarding battery-powered trucks and a new market for battery-powered ships.

Frank Ha, chief executive of Tianqi Lithium which is a shareholder in the Greenbushes lithium mine in WA, said even the most optimistic forecasts for batteries had not taken into account the growth in shipping and truck demand.

The biggest beneficiary of the higher lithium price and Ha’s forecast was lithium and iron ore miner Mineral Resources which rose this week by $3.33 to $70.15 boosted by a decision to restart the Bald Hill mine and a Morgan Stanley site visit to its Wodgina mine in WA which noted higher lithium recoveries.

PLS was also a lithium winner this week, but only just, rising by 2.5c to $6.12 with most other lithium stocks easing in the face of investor uncertainty over plans to tighten capital gains tax in the Australian Government’s budget.

Core Lithium slipped 3c lower to 31c despite announcing the restart of mining at its Finniss project in the Northern Territory. Vulcan was 23c weaker at $3.48, and Pmet lost 6c to 68c despite gaining additional government support for its Canadian project.

Forrestania was the pick of the gold sector with a 6c rise to 61c thanks to encouraging results from the latest drilling campaign at its Mt Palmer project in WA which returned assays up to 7.6 grams of gold a tonne over 6m from just 3m below the surface and 18m at 1.9g/t from the surface.

Other gold movers, all down, included:

  • Bellevue, down 14c to $1.49 despite reporting first ore delivered from its high-grade Deacon North project.
  • Ora Banda, down 8c to $1.32 despite reporting plans to double production at its Davyhurst project in WA, and despite a buy tip from Macquarie with a price target of $1.70.
  • Catalyst, down 49c to $5.42 after reporting plans to increase processing capacity at its Plutonic mine, and
  • Northern Star, down $1.97 to $18.92 after announcing the retirement of its long-serving MD Stuart Tonkin.

Copper stocks, the stars of earlier this month when the copper price hit an all-time high of US$6.60 a pound, faded as the price slipped back to US$6.28/lb.

Copper moves and news included:

  • Sunstone, down 3c to 33c despite reporting fresh discoveries outside the Bramaderos project in southern Ecuador and a Shaw report which said the stock could rise to $2.10.
  • True North, down 2.5c to 45c despite reporting solid exploration results from its Mt Oxide project in Queensland and buy tip to Morgans with a price target of $1.30.
  • Midas Minerals, down 13c to 97c despite reporting exceptional copper and silver assays from drilling sat its Otavi project in Namibia, including 46.2m at 4.01% copper equivalent (2.55% copper and 77g/t silver, and
  • Orion Minerals, in a trading halt at 2.9c after reporting exceptional copper grades 3.33m at 17.12% (in a zone of 7.88m at 9.24% copper) at its Okeip project in South Africa.

Other news and moves of interest included:

  • Brazilian Rare Earths, rising by 84c to $6.40 after announcing plans to divest a bauxite project into a new business called Alurion Resources.
  • Encounter Resources, down 3.5c to 26c despite reporting strong metallurgical recoveries from its Aileron niobium project in WA, and
  • Paladin Energy, down 2c to $10.54 despite an upbeat report on the uranium sector from Morgans which include a share price target for the stock of $13.05 and a target of $1.55 for Boss Energy even as it slipped 13c lower to $1.21.