Prospect of US rate cut puts shine back on gold as iron ore shows signs of peaking

The pendulum swung both ways on financial markets this week with gold relishing the prospect of a fall in US interest rates
12th July 2019
Tim Treadgold

The pendulum swung both ways on financial markets this week with gold relishing the prospect of a fall in US interest rates and base metals declining because lower rates signal slowing economic activity.

Much of what’s just happened could set the tone for the rest of the year with the US expected to make deep cuts into its interest rates, especially if the trade war with China worsens.

Key man in everything is the US President, Donald Trump, with his pressure on Jerome Powell, chairman of the US central bank, starting to deliver what Trump wants – high-speed growth, no matter what the long-term cost.

For gold, that could mean another 18-months of strong demand and a rising price, all the way to the 2020 Presidential election, when Trump will be able to claim personal success in revitalising the US economy – albeit with a massive debt build-up and a depreciated dollar.

A “weaponised” dollar is emerging as the next stage of Trump’s trade war with friends and enemies because a cheaper dollar helps US exporters, and the value of gold which is priced in dollars and seen as a safe haven from a falling dollar.

A glimpse of what might be to come can be seen in the $US20 an ounce jump in the gold price immediately after Powell told a congressional hearing in the US that he was leaning toward a rate cut sometime this month, without actually saying when or by how much.

That means the next leg up for gold could be the formal announcement of a rate cut and the commentary around whether it’s the start of an easing cycle that could run for the rest of the year.

As at yesterday, the international gold price was around $US1422/oz and the Australian gold price was at $A2038/oz.

Most local gold stocks rose, though not convincingly. Dacian, which is rapidly making up lost ground, was the top performer with a 14c rise to 60c over the week, a good result though the stock has a long way to go to reclaim this year’s high of $2.83.

Gold Road was another strong performer, adding 8c to $1.22 as investors warmed to the production news from its part-owned Gruyere mine in WA. Red 5 hit a 12-month high 24c, up 4c over the week, while Evolution also reached a high of $4.50 on Wednesday before easing to $4.40 for a modest 4c gain over the week.

Iron ore, the industrial commodity-star of the year, showed signs of peaking after a stellar run to $US127 a tonne and while there might be some good days ahead, it is also evident that Brazilian ore is reaching China and that means the next significant price move will be down.

Fortescue Metals reflected the changing nature of the iron ore sector with a 28c fall over the week to $8.74, while Mt Gibson fell 6c to 91c.

Battery metal stocks showed signs of ending their sell-off. Pilbara Minerals moved up by 1c to 49c after an upbeat sales forecast. Galaxy was down 2c at $1.27 and Syrah, the graphite leader, added 12c to 95c.

Rare earth stocks were firmer. Lynas put on 5c to $2.76 and Greenland rose by 2c to 15.5c after announcing a big reduction in the capital cost of its Kvanefjeld project in Greenland.

Zinc came under renewed price pressure as a shortage of the steel galvanising metal showed signs of moving into a surplus with Morgan Stanley, an investment bank, tipping a price slide to $US1 a pound from its current $US1.08. New Century Zinc remained under pressure, slipping 10c to 32.5c – a country mile from its $1.34 at this time last year.

For investors with an eye on the small-to-medium end of the resources sector, the big event next week is the Noosa Mining Conference with star performers expected to include nickel miner Panoramic, which Morgans, a stockbroking firm reckons is heading for 70c, more than double its current 31.5c, and Strandline which is tipped to hit 38c – also more than double its latest sales at 13.5c.

Other news events and interesting share price moves, up or down, this week included:

  • Kalamazoo Resources traded up to a 12-month high of 19c after announcing an expanded footprint in the historic Victorian goldmining centre of Wattle Gully. The stock eased to close yesterday at 18c for a gain over the week of 2c and a price well ahead of six weeks ago. when it was 10c.
  • Vango Mining added 1.5c to 17.5c after releasing fresh assays from drilling at the Marwest prospect within the broader Marymia gold project in WA. Best intersection in the latest drilling was 11 metres at 3.1 grams a tonne from a depth of 137m.
  • Alkane Resources said it has defined significant new exploration targets close to its Tomingley goldmine in NSW which could significantly extend the life of the mine. On the market, Alkane added 1c to 42c.
  • Legend Mining added half-a-cent to 3.2c after announcing joint venture exploration projects in the Fraser Range district of WA with Independence Group and Creasy Group.
  • West African Resources reported strong results from grade control drilling at its Sanbrado gold project in the West African country of Burkina Faso, including 27m at 8.7g/t from a depth of 30m. On the market, the stock rose by 2c to 36c.
  • Bellevue Gold said it had lifted the resource at its namesake project in WA to 1.8 million ounces. The market had been expecting better, rubbing 7c off the stock, which slipped to 62c.
  • Rumble Resources reported promising cobalt and platinum assays from its Munarra Gully project near Cue in WA with a best hit of 0.48% cobalt over 2m, plus 220 parts per billion of platinum, from a depth of 18c. The stock crept up by 0.3c to 5.8c.
  • Adriatic Metals eased back by 1c to $1.14 despite reporting fresh intersections of high-grade base metals at its Rupice project in Bosnia. Best hit was 10m at 3.6% zinc, plus 2.3% lead and useful grades of gold, silver and copper.
  • Liontown was up half-a-cent to 10.5c despite reporting a big increase in the lithium resource at its Kathleen Valley project in WA. The project now stands at 74.9 million tonnes grading 1.3% lithium oxide.
  • Orion Minerals slipped 0.2c to 2.9c after reporting that it has received environmental approval for its plan to redevelop at historic Prieska zinc and copper mine in South Africa.
  • Genex Power added 1.5c to 25.5c after announcing a funding arrangement with the Northern Australia Infrastructure Facility for its Kidston pumped hydro project, and
  • Koppar Resources was steady at 18c after announcing plans to buy a lithium-rich brine project in Germany. The company has recruited well-connected Gavin Rezos as its chairman.

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