It’s Trump’s official return as U.S. President at his inauguration in Washington on Monday (U.S. time) which will set the tone for the next 12-months, and beyond.
So far, the signs are encouraging with the U.S. stock market surging higher yesterday on news of a ceasefire in Gaza and a fall in U.S. inflation which points to lower future interest rates.
But hanging over Australia, and the rest of the world, is Trump’s threat of a trade war with China and countries long regarded as a friendly to the U.S.
If Trump is true to his property developer roots, the threats will eventually be seen as a negotiating tactic aimed at getting a better deal for the U.S. without having to fire a shot.
A clue that his plan might be working can be seen in a remarkable divergence in metal prices with the price of copper in the U.S. rising faster than in any other major economy with copper often seen as a measure of underlying economic activity.
Citi, an investment bank, was first to spot the copper split with the metal trading up to 5.5% higher in the U.S. than elsewhere, a difference seen as pricing in a 50% chance of a broad 10% tariff on goods imported into the U.S.
Cobalt, a critical metal with a number of technology applications, has been showing a similar price differential as the U.S. focuses on stimulating local growth at the expense of trading relationships.
The inflation data and growing optimism in the U.S. economy helped the New York Stock Exchange rise by 1.8% on Wednesday, while the technology heavy NASDQ market jumped by 2.45%.
Locally, the Australian market enjoyed a Trump bump yesterday as news of falling inflation and the Gaza deal made headlines with the ASX all ordinaries index delivering a 100-point rally in the first minutes of trading.
By the close, the index was up 109 points (1.2 %) wiping out an earlier fall and to be within 30 points of its New Year high reached last week.
Gold rallied on the news of falling U.S. inflation, which should flow through to lower interest rates, boosting gold’s investment appeal.
The gold price rose by US$21 an ounce this week to US$2695/oz, remaining on track to clear the US$3000/oz mark later this year and stay above that level until well into 2026, according to leading investment bank Goldman Sachs.
Price, however, is not the only reason Goldman Sachs is keen on Australian gold miners with free cash flow becoming a major investment incentive. After three years of a rising gold price, a river of cash is flowing into the miners.
“We expect our Australian gold coverage is set for a growing cash harvest over the next 12 months as price increases outweigh cost escalation,” the bank said.
Newmont, Northern Star, Gold Road and Bellevue are top of the Goldman Sachs gold sector investment recommendations. Newmont this week added $2.96 to $66.46, perhaps on track to reach the Goldman Sachs’ target of $76. Northern Star was up 48c at $17.18 (target $20). Gold Road added 26c at $2.33 ($2.65 target), and Bellevue rose by 1c $1.10 (target $1.55).
Other price moves and news from the gold sector included:
- De Grey, up 5c at $1.99 after the release of fresh assays from its Brolga discovery in the north of WA with a best hit of 3.4 grams a tonne over 70 metres from a depth of 36m.
- Western Gold, up 2.6c to 6.5c after reporting funding plans for its Duke gold project in WA.
- Alkane Resources, up 1c at 52c but backed by a buy tip from Bell Potter which sees the stock rising to $1.25, and
Uranium returned to centre-stage internationally and locally thanks to reports of the nuclear fuel, when enriched into power stage feed (so called separative work units), hitting an all-time high of US$190/SWU, a rise yet to be felt in the more commonly traded form of yellowcake (U308) which was steady this week at US$73.75 a pound.
The record price for enriched uranium stirred interest in the fuel but might also have set the scene for a showdown between optimists and pessimists with the short-sold position of two local leaders widening rather than contracting as might have been expected.
Boss Energy, which is redeveloping the Honeymoon uranium project in South Australia, rose this week by 19c to $2.81 with Macquarie Bank setting a price target of $4.50 even as short sellers lifted their exposure to 18.14% of the stock, up from 17.64% last week.
Paladin Energy, another local uranium stock besieged by shorters, rose by 60c this week to $8.53 with Citi setting a target price of $13.50 even as shorters raised their stake to 16.05% of the stock, up from 15.85% last week.
It’s stating the obvious, but something has to give, with a possible event being a short squeeze driving the price of both Boss and Paladin sharply higher.
Another uranium stock in the news this week was Peninsula Energy which added 15c to $1.37 after winning approval to start its Kendrick mine in Wyoming followed by a buy tip from Shaw and Partners complete with a price target of $4.60.
Lithium, after months in the sin bin, showed signs of life, with Morgans, a local stockbroker, seeing better conditions ahead for the key battery metal, which has been edging higher when traded as part-processed ore (spodumene).
“Current spot prices for spodumene are higher than prices last September yet lithium equities are being sold off,” Morgans said.
Local leader Pilbara Minerals recovered some lost ground this week with a rise of 8.5c to $2.35, heading towards the Morgans target price of $3.25. Vulcan, which was sold off heavily before Christmas, lost another 11c this week to close to $5.96.
Mineral Resources, the troubled lithium and iron ore producer, had a strong week with a rise of $1.40 at $36.34 thanks to the improving lithium outlook and an unexpected boost to iron ore expectations from investment bank Morgan Stanley.
Rather than slide away to US$80 a tonne, and less, the latest assessment of Morgan Stanley is that iron ore could rise to US$112/t in the current (March) quarter before easing back to US$100/t with “meaningful” price pressure from the big Simandou mine in Africa not being felt until next year – and perhaps not even then.
The bank’s positive view of iron ore is based on an assessment of output depletion from existing mines which sees an annual global decline of between 3%-and-4% in supply which means an extra 400 million to 550 million tonnes of new supply is needed every year to make up the shortfall.
Simandou is expected to contribute 120m/t a year from 2027 meaning it is not the “category killer” some analysts see and might simply be absorbed seamlessly into the global supply chain.
Fortescue Minerals was the biggest winner from this new look at iron ore, adding $1 to $18.91, slightly above Morgan Stanley’s price tip of $18.55, and comfortably above $17.50 price forecast of UBS.
Arafura Rare Earths was the news maker in the rare earth sector after securing a capital injection of $200 million from the Australian Government in the form of a convertible note to help fund its Nolans project in the Northern Territory.
Bell Potter liked the deal with the National Reconstruction Fund Corporation but stuck with a hold tip on the stock and price target of 15c – 1c above yesterday’s closing price of 14c.
Other news and market moves on interest this week included:
- Rio Tinto leading the charge of the majors with an upbeat quarterly report that helped the stock add $1.17 to $119.30. South 32 is next cab off the majors rank, filing its December quarter report on Monday, followed on Tuesday by BHP and on Thursday by Fortescue.
- Energy Transition Minerals added 2.1c to 9.1c after announcing the recruitment of former Foreign Minister Julie Bishop as an adviser to its Kvanefjeld rare earth project in Greenland.
- Highfield Resources rose by 2c to 27c after announcing a deal with a Chinese company which might accelerate development of its Muga potash project in Spain.
- Syrah Resources added 2.7c to 24c after announcing a US$165 million tax credit from the U.S. Government to help with its graphite projects, and
- Whitehaven Coal rose by 12c to $6.18 despite reports of coal prices falling. Bell Potter reckons Whitehaven will keep rising with $9 the price target.
