Talk of vaccines and rising bond yields clip gold stocks as investors return to industrial metals

“When the facts change, I change my mind, what do you do?” – a question credited to the great 20th century economist, Lord Keynes, and one which today’s investors should note as encouraging Covid-19 vaccine news floods financial markets.
13th November 2020
Tim Treadgold

“When the facts change, I change my mind, what do you do?” – a question credited to the great 20th century economist, Lord Keynes, and one which today’s investors should note as encouraging Covid-19 vaccine news floods financial markets.

Gold, a favourite of many Australian investors, was first to feel the chill of a market shift with the price taking a $US100 an ounce hit, partly because of vaccine news and partly because of a modest increase in U.S. interest rates and a weakening of the U.S. dollar.

Exposure to gold remains an essential component of any balanced portfolio but the rush which boosted the metal’s price by 40% over the past 12-months appears to be passing.

That means gold, in its bullion form, is reverting to its role as an insurance policy and protection against currency debasement caused by excess government money printing.

It could also mean that some of the gold sector’s leaders and companies with solid exploration and development stories to tell are reverting from boom-time prices to fair value – and while that process is unwelcome for some investors, others could find it a buying opportunity.

De Grey Mining, for example, has made a terrific discovery in the Pilbara region of WA, tearing up from 5c at the start of the year to $1.60 but back now to $1.14 thanks to news of Pfizer’s Covid-19 vaccine breakthrough, which walloped the gold price.

Bellevue Gold is another discovery story (or re-discovery to be more accurate) which is riding the gold-price correction reasonably comfortably. The stock lost 17c in the immediate aftermath of the vaccine news but regained ground later to close the week down just 2c at $1.32 and with Canaccord Genuity refreshing a buy tip and an increased price target of $1.55.

More market-moving vaccine news is expected soon after U.S. infectious diseases expert, Anthony Fauci, told a pharmaceutical conference on Wednesday that Moderna was likely to soon report a similar level of success with its vaccine – and then there are another 115 experimental Covid-19 vaccines in various stages of development.

Vaccine news and the possible elimination of Covid-19 is also affecting the appeal of other safe havens. U.S. Treasury bonds have been rattled by the prospect of a sea-change in interest rates with yields rising on 10 and 30-year paper to levels last seen in March – when the pandemic started.

Macquarie Bank attributed gold weakness to vaccine news and the rise in U.S. bond yields which, after inflation, have risen from a mid-year low of minus-1.1%, in the case of 10-year bonds, to plus-0.8%

The flipside of the change, which appears to be gathering pace, is that industrial commodities and old-fashioned industrial companies are regaining favour because of a belief that 2021 will be the start of strong global economic growth.

Fundamental changes in market settings are unsettling for investors and there are still several hurdles to clear before it can be said with confidence that the worst is over. The U.S. is yet to finalise its tortuous Presidential election process and China continues to behave badly.

But assuming next year is a return to conditions last seen in 2019, then there are a number of investment sectors which are poised for a bounce, including energy (old and new – that means oil and battery metals), industrial metals (copper, nickel and zinc), transport as mobility returns, and that essentially, means aviation.

Other interesting developments with associated share price movements this week included:

  • Azure Minerals almost doubled from 34c to 65c after reporting a promising nickel and copper discovery at its recently acquired Andover project in WA’s Pilbara region.
  • Crater Gold said it had encountered high indium assays from drilling at the company’s polymetallic project in north Queensland. Indium is a super-soft metal with widespread uses in electronics. On the market, Crater rose five-fold from 1.1c to 5.4c.
  • Thomson Resources added 2.6c to 9.9c after striking a deal to buy two silver deposits in NSW as well as raising $6 million in fresh capital, and
  • Australian Strategic Minerals continued its remarkable run adding another 17c to $3.60 after announcing that it had produced permanent magnet alloy made largely of rare earths at its Korean research project. Three months ago, the Alkane Resources spin off was trading at 86c.

Other rare earth and battery metal stocks had a good week thanks to the prospect of a new government in the U.S. offering incentives for car owners to make the switch to electric vehicles and for greater investment in renewable energy.

Lynas, the local rare earth leader, added 24c to $3.28, but did trade up to a 12-month high of $3.33 on Wednesday, and Greenland Minerals put on 2c to 30c, double the stock’s mid-year price.

Pilbara Minerals, which is shaping as one of the big winners from forecasts of a significant lithium revival next year, had another good week hitting a 12-month high of 52c before closing at 50c for a gain of 6c.

That rise by Pilbara made it one of the best performers of the companies to present at this week’s Resources Rising Stars conference. Other companies at the conference to make noteworthy moves included Greenvale Mining, up 1.5c to 8.2c. Kingston Resources, up 2c to 26c, and Chalice Gold, up 19c to $3.27.

The conference opened with a well-received talk from Lion Mining’s Hedley Widdup who said his widely-followed Mining Clock was at 10 o’clock, the best phase of a boom before the end at midnight which might not be reached for years.

Iron ore stocks had a mixed week as the price of the steel making material edged ever higher thanks to optimism about a global economic recovery next year. Mineral Resources added 16c to $27.30, and Champion Iron was up 8c to $3.91, but sector leader Fortescue Metals lost 63c to $16.56 after its chairman, Andrew Forrest, revealed plans to invest heavily in renewable energy projects.

Uranium continued to generate interest after a report by RBC Capital Markets which forecast a big deficit developing which would lift the price from its current $US30 a pound closer to $US40/lb. Most U-stocks crept higher. Paladin, and Deep Yellow by 1c each to 14c and 34c, respectively. Berkeley Energia rose by 2c to 44c.

Other news events and market moves of interest included:

  • European Metals Holdings added 10c to 66c but did trade as high as 76c on Monday earning a speeding inquiry from exchange regulators. The company said its lithium and tin project in the Czech Republic was attracting the interest of European investors.
  • Red River Resources said it too was a player in the indium hunt with encouraging assays returned from drilling at its Orient project in Queensland. On the market, the stock rose by 4c to 26c.
  • Ardea Resources swam against the outgoing gold tide with a rise of 6c to 52c after reporting assays as high as 13 grams a tonne over 10 metres from a depth of 42m at its Zeus project near Kalgoorlie in WA.
  • Auteco Minerals reported encouraging assays from its Pickle Crow project in Canada with a best hit of 18.52m at 2.75g/t from a depth of 122m with a core grading 17.28g/t over 1.52m. On the market the stock slipped 3c lower to 10c, and
  • Siren Gold reported significant assays from its drilling at Reefton in New Zealand, including 8.5m at 11g/t, lifting the stock by 3c to 48c.

 

Image: CME Group

 

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