The US$440 per ounce fall in the gold price to around US$4082/oz bruised confidence in the metal which has now dipped below its 200-day moving average for the first time in three years.
Gold could go lower. Analysts at the U.S. investment bank Citi have pencilled in a target of US$3500/oz, a level last seen nine months ago when the metal was in the early stages of its record-breaking run to a late January all-time high of US$5400/oz.
Why gold crashed this week is explained by a mix of factors with the most obvious being fear that global interest rates, including those in the U.S., are heading higher as governments scramble for funds to try and balance their dangerously (and foolishly) stretched budgets.
Investors are aware, and showing signs of becoming alarmed, about what’s happening on equity, debt, and commodity markets with Chicago’s volatility index (or VIX) which is also known as the fear index, rising by 36% this week and while the latest reading of 22.2 is no cause to panic, it’s the upward trend which is ringing a warning bell.
One of gold’s “permabulls”, the Canadian resource investment specialist Sprott, reckons gold will make a comeback because of the same government debt issue which is hurting it today.
Sprott’s latest market outlook said the world’s growing debt burden is entering the late stage of a decades-long cycle which is eroding confidence in sovereign debt markets as governments accumulate liabilities faster than their economies can grow.
“Policymakers will face difficult choices between fiscal austerity, higher inflation, financial repression or some form of debt monetisation,” Sprott said.
“In such an environment, gold’s role changes. Rather than simply serving as an inflation hedge, it becomes a store of value independent of governments and financial systems.”
That view might be correct, in time, but the immediate issues unnerving investors are the war in Iran and the inflationary effect of a rising oil price which is driving central bankers into a corner with their standard inflation-fighting response being to raise interest rates.
High rates are gold’s worst enemy but other factors are combining to drain support for the metal, especially the massive calls on investors from artificial intelligence (AI) data centre building and the space race started by the US$1.7 trillion SpaceX float which includes exposure to AI data centres.
At least 30,000 Australian account holders at the Commonwealth Bank’s share trading arm CommSec are reported to have applied for shares in SpaceX, a measure of both the hype in the stock and a chance for Australian investors to shift their money out the country and its tax happy government.
An additional factor effecting the Australian market is the annual portfolio cull which always preceded the end of the financial year (19 shopping days to go) and can sometimes see quality stocks dumped in an exercise which can be likened to throwing the baby out with the bath water.
The overall effect of this week’s toxic mix of negative factors on financial markets was a 2.2% fall in all ordinaries index, an 11% fall in the mining index and a 16% fall in the gold index.
Most gold stocks fell, some quite heavily, with one winner in the sector, takeover target Zenith which rose by 2.2c to 11c while its acquirer, Forrestania Resources, lost 5c to 48c – a perfect example of why an investors should sell the bidder and buy the target.
Other gold moves, and nervous readers should look away now, included:
- Struggling Northern Star slipping $2.83 to $18.21, taking its fall since the start of the year to $6.29 (25.8%).
- Australia’s second biggest gold producer Evolution Mining, down $1.64 to $10.63, taking its fall for the year to $2.05 (16%).
- Andrew Forrest’s gold play Greatland, down by $1.83 to $11.53, and
- Southern Cross Gold losing $2.19 to trade at $8.68 with the fall coming despite excellent drill result from its Apollo project in Victoria.
Copper stocks were sold off like the rest of the market despite the copper price holding up relatively well with a fall of just US6 cents a pound to US$6.18/lb.
Most companies with copper interests lost ground with one exception. White Cliff Minerals eked out a gain of 0.1c to 1.7c after reporting high grade assay from drilling at is Danvers project in the far north of Canada, including 19.81 metres at 6.64% copper.
Other copper moves included Sandfire, down $1.90 to $18.02, True North Copper, down 9c at 39c, and Capstone, down $2.09 at $13.23.
Uranium stocks were hit with the same “risk off” mood of the market despite no sign of a fall in the uranium price.
U-moves (all down) included Elevate, down 3c to 23c despite reporting a 31% increase in the resource at its Marinca project in Namibia, Paladin, down $2.09 at $9.13 and Deep Yellow, down 24c at $1.34.
Good news this week, and there was a bit if you looked closely, could be found in a surprisingly large burst of successful fund raising, a sign there is still money available for an attractive asset. This week’s raisings included:
- Develop securing US$400 million for the double-header funding of the Sulphur Springs copper and zinc project and the Pioneer Dome lithium development. On the market, Develop slipped 19c lower to $6.11 while Bell Potter stuck with a buy tip and price target of $7.10.
- Barton Gold and Alicanto raised $26 million and $30 million for their gold projects in WA, and
- Smaller capital injections were undertaken by FMR, $5 million for copper exploration in Chile, Artemis, $8 million for copper and gold in WA, and Patagonia Lithium, $11.4 million for its Argentinean lithium project.
Other news and market moves in a gloomy week included:
- New Hope Corporation rose by 3c to $6.02 in another demonstration that coal stocks are winners at a time of high oil prices.
- Woodside Energy also benefited from oil market uncertainty, rising by 25c to $31.65, while Santos added 24c to $8.11.
- Killi Resources, which has plans for an iron ore development in the Mid-West of WA, made a splash on its return after a capital and management overhaul, restarting at 26c, rising to 29c, and then fading to 24c.
- IGO was buffeted by news of a fire at its Greenbushes lithium mine in WA, falling by 96c to $8.48.
- Core was the best of the lithium stocks but still lost 6c to 24c after reporting the second sale of its lithium fines. PLS was down 64c at $7.74 and Liontown lost 43c at $1.91, and
- Tin Miner MetalsX slipped 17c lower to $1.43 despite another rise in the price of tin to US$52,935 a tonne.
