Combination of Biden bump and jab jollies fuel gold and industrial metals alike

Gold got a Joe Biden bump after his inauguration as the U.S. President yesterday
22nd January 2021
Tim Treadgold

Gold got a Joe Biden bump after his inauguration as the U.S. President yesterday, but the battery-metals sector is (so far) proving to be the more significant winner as the new man in the White House brings with him a range of tough environmental protection policies.

A clearer look of what’s to come can be seen in China where there is a market for trading in obscure commodities such as neodymium, a rare earth favoured by makers of the long-life batteries used in electric cars.

According to data published by Trading Economics, the price of neodymium has risen by 54% since Biden won the November 2 election in the U.S. and is up 82% since the Covid-19 pandemic crushed asset values earlier this year.

It is the rise in neodymium, and its sister metal praseodymium, which best explains the 50c rise by Lynas Rare Earths this week to an all-time high of $4.86, a level which means the stock has risen by 355% since 10-months ago when it dropped to $1.07.

Lithium, the most important of the battery metals, has also been recovering strongly since Biden’s election win in November, rising by 39%, taking local lithium miners with it, such as Pilbara Minerals, which added 14c this week to $1.35, continuing a powerful recovery from a low of 14c in March last year.

Gold, on the other hand, did get a $US32/oz Biden bounce after his inauguration to trade around US$1872/oz but that simply took the metal back to where it was in early November.

The gold price might not stay subdued for long because along with policies that promote green technologies, which require large amounts of metals such as rare earths, copper and nickel, the Biden administration is promising a massive program of economic stimulus. A flood of dollars could severely depreciate the value of the currency and boost gold.

Goldman Sachs, one of the best connected of the U.S. investment banks, this week refreshed its prediction that gold would react strongly to the U.S. stimulus spending cash with the price likely to rise in the current (March) quarter to $US2300/oz – and stay there for the next two years.

Canaccord Genuity also dusted off its gold price forecast but with less enthusiasm. The Canadian bank has upgraded its gold price for March from $US1903 to $US1949 but does not expect the metals to breach the $US2000/oz mark until 2024.

The Biden bump has boosted most gold stocks with it. Northern Star, which released a solid December quarter report, added 81c over the past four trading days to trade at $13.61. Evolution crept 10c higher to $4.70 and Newcrest gained 50c to $27.24, a modest move given the news that it is proceeding with the development of the Havieron project near its Telfer mine.

The driver behind the buoyant outlook for commodities and the resources sector of the Australian stock market remains China, which has surged out of its pandemic slowdown to be growing at a hectic pace.

That trend is likely to continue and while Australia is not on China’s party invitation list, it is a beneficiary of the country’s economy, whether Beijing likes it, or not.

Iron ore is the best example of Chinese demand for raw materials and while every investor is tired of being told that there’s a correction around the corner, the reality is that ongoing supply shocks are keeping the price at an elevated $US170 a tonne, with a surge to $US200/t possible in the next few weeks.

UBS, an investment bank, reckons that China will continue to growth strongly this year with annualised December quarter economic expansion of 6.5% likely to be eclipsed by growth of 8.2% over the rest of 2021, and perhaps higher.

Chinese steel demand, and with U.S. stimulus spending to come, is one side of the iron ore story. The other side is a fresh supply shock in Brazil where a fire closed part of an iron ore export facility, with the potential for another boost as a cyclone bears down on Port Hedland and Dampier in the north-west of WA, two of the world’s busiest iron ore ports.

It’s the high iron ore price, supported by the promise of bumper dividends, which underpins this month’s all-time share price highs for BHP, Rio Tinto and Fortescue Metals, and a strong showing by the next exporter, Fenix Resources which has added 6c to 26c this month.

Reporting season, which kicked off this week, has produced few surprises so far. The two big boys of mining, BHP and Rio Tinto, delivered reasonable production reports for the December quarter.

Overall, the Australian stock market had another strong week. The all-ordinaries index moved up to 7094 points, within touching distance of its pre-pandemic high of 7230. The metals and mining index at 5627 is already well above its level of 4793 at this time last year while the gold index, at 7480, is almost back to where it was 12-months ago.

Other newsworthy developments and market moves this week included:

  • Bougainville Copper burst back into the spotlight after decades in the sin bin with a 25c (77%) share price rise to 62c thanks to growing confidence that a deal with local landowners might clear the way for a restart of copper mining on the Pacific Island of Bougainville after a civil war closed what was once one of Rio Tinto’s most valuable assets.
  • Low-key Los Cerros, which is led by former Redback Mining boss Ross Ashton, added 6c (50%) after reporting a spectacular drill hit at its Tesorito copper/gold project in Colombia. Best intersection was 1.5 grams of gold over 320 metres starting at 2m.
  • Boab Metals, the renamed Pacifico, caught the eye of analysts at Shaw and Partners who said in a research note that a resource upgrade was on the way for the company’s Sorby Hills lead project in the far north of WA. On the market, Boab added 4c to 50c, but Shaw has pencilled in a price target of $1.02.
  • Liontown Resources released promising initial assays from its Moora project in WA, including 10m at 1.9% copper from a depth of 32m. The company is also making progress with a definitive feasibility study into its Kathleen Valley lithium project. The share price was steady this week at 44c, but Bell Potter made a modest increase in its price target from 54c to 55c, and
  • Hammer Metals updated drilling results from its Trafalgar copper project near Mt Isa in Queensland where assays as high as 1.12% copper over 55m from a depth of 149m have been recorded, along with 0.3g/t of gold. On the market the stock more than doubled this week to 7.8c.

 

Image: Alex Wong/Getty Images

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