US election fever fuels growing volatility, awakening gold in the process

Gold took a peek above $US1900 an ounce in the aftermath of this week’s Trump v Biden presidential debate as financial markets started to price risks associated with increased volatility ahead of a possible change of government in the U.S.
2nd October 2020
Tim Treadgold

Gold took a peek above $US1900 an ounce in the aftermath of this week’s Trump v Biden presidential debate as financial markets started to price risks associated with increased volatility ahead of a possible change of government in the U.S.

Despite sliding back to around $US1893/oz to still be well short of the record $US2067/oz reached in early August, it is the return of an upward price trend which should have investors revisiting their exposure to gold.

The gold recovery was not the only significant market news this week, with market-moving events which included:

  • An iron ore price rebound after a recent sell-down;
  • Battery metals bouncing after Tesla’s Battery Day;
  • Coal stocks stirring thanks to China steel-making boom and speculation of a BHP Coal spin-off, and
  • Solid discovery news led by RareX’s 50% price rise after reporting high-grade rare earth assays from drilling at its Cummins Range project in WA.

Apart from the volatility factor, hints of a gold-price recovery were supported by reports that central banks were likely to be bigger gold buyers next year.

According Citi, an investment bank, central banks will lift their gold buying from 375 tonnes this year to 450 tonnes in 2021, a positive pointer for gold because the biggest owners of any asset generally have a clearer view of the underlying market.

Other bullion market observers echo Citi’s opinion about central bank gold buying a development which could confirm a deepening loss of faith by central banks in government-backed currencies, especially the U.S. dollar.

Fresh interest in gold could also be measured in Australian share price moves, with most of the leading gold miners recovering from their recent low points reached during the gold-price fall.

Evolution Mining added 8c to $5.79, but still has a long way to go to reclaim its mid-September high of $6.24. Saracen rose by 17c to $5.16, down from its high last month of $5.45 but trending up, and Northern Star gained 14c to $13.74, perhaps on its way back to its August high of $15.01, or even to Macquarie Bank’s new price target of $16.60.

Other moves among gold stocks included:

  • Bellevue Gold adding 6c to $1.06 after reporting further high-grade drill results from its namesake project in WA with a best hit of 4.6 metres assaying 34.8 grams of gold a tonne from a depth of 241.8m.
  • West African Resources continued a run of encouraging drill results at its Sanbrado gold project in Burkina Faso with intersections that included 15.5m at 20.5g/t from 852m and 32m at 4.9g/t from 854.5m. On the market the stock added 9c to $1.11.
  • Navarre Minerals rose by 2c to 16c after releasing an upbeat report from the CSIRO about the potential for the discovery of more gold targets in the Stawell Corridor project area in Victoria, and
  • SSR Mining, the merged Alacer Gold and Standard Silver, started to attract investor attention after a price rise of $1.20 to $26.21 late this week, followed by a buy note from the leading investment bank, UBS which reckons the stock is heading for $33.

Iron ore, as mentioned earlier, staged a strong recovery with the price of high-quality material rising by a sharp $US4.55 a tonne to $US123.45 while even low-grade ore put on $US3/t to $US113/t.

Fortescue Metals was the big beneficiary of the price rises, These reflect China’s sizzling economy, which is generating strong demand for steel. On the market, Fortescue rose by 97c to $16.86. Other iron ore producers also rose, including Mineral Resources, which put on 20c to $25.20.

The iron ore rebound defies expectations of a substantial correction after two stronger-than-expected years and the latest analysis of iron ore futures which show a slide to $US85/t by the end of next year.

But offsetting that reading from the futures market was a fresh report from UBS which reckons Brazil is still struggling to fully restore exports after a series of outage events.

“Brazilian iron ore shipments fell 6% week-on-week last week to 6.4 million tonnes,” UBS said. The latest export rate is 12% down on a year ago.

Battery metals enjoyed a boost from Tesla’s Battery Day promotion which was followed by confirmation that the leading electric car maker plans to buy lithium from ASX-listed but U.S.-focused Piedmont Lithium, as well as consider mining its own lithium.

Piedmont received a huge boost, added 12c (50%) over the week to 34c, but did trade up to 42c at one stage on Tuesday.

Most other lithium stocks shared modestly in the renewed battery-metals enthusiasm. Pilbara Minerals added 1c to 32c and Galaxy was 5c stronger at $1.17, but Orocobre slipped 4c lower to $2.48.

Nickel, a metal increasingly seen as a battery material, staged a solid price recovery late in the week but investors also got a reminder from Macquarie Bank that it is Chinese stainless-steel demand which remains the price driver.

According to Macquarie, the stainless-steel share of nickel consumption rose from 74% in 2019 to 81% this year, an estimate which hoses down the battery-metal appeal of nickel, for now.

While new-energy metals were enjoying a fresh boost, the oldest of the energy minerals, coal, was also in the news thanks to a pair of investment bank reports.

Morgan Stanley surprised everyone with an advisory note which put coal, especially metallurgical (steel-making) coal at “the top of our commodity preferences on a 12-month view” based on a belief that the China-driven recovery has been delayed in the coal sector.

Citi took a different approach to coal, suggesting that BHP is working towards a coal-asset spin-off similar to the creation of the base-metal specialist, South32.

“Coal Co”, as Citi calls the spin-off, will be well-funded, with BHP injecting $US500 million into the cast-off business while also ensuring that it owns assets generating pre-tax earnings of between $US690 million and $US900 million, leaving it up to BHP shareholders to decided whether to sell or hang on to the coal assets.

Exploration and project development news moved a number of stocks, including:

  • RareX, mentioned earlier thanks to its 50% price rise to 12c, reported exceptional assays of up 41m at 4% total rare earth oxides from a depth of just 29m at Cummins Range. Other assays fell into the ultra-high category such as 3m at 25.1% and 29m at 5.2%.
  • Australian Strategic Materials, the Alkane Resources spin-off, continued to impress with a fresh report about the production of the high-value rare earth dysprosium in Korea from ore sourced at Dubbo in NSW. On the market, ASM added 40c over the week to $2.42.
  • Thomson Resources added a 1c to 5.7c after reporting a positive due diligence study into the Hortons gold project near Tenterfield in NSW where historic assays include 30m at 8.6g/t.
  • Andromeda Metals put on 2c to 15c after announcing an upgraded resource for its Hammerhead kaolin deposit in South Australia.
  • Cyprium gained 3c to 19c after lifting the resource estimate for its Hollandaire copper project in WA by 33% to 51,500 tonnes of contained copper with a second report filed into high-grade copper and gold at the Nanadie Well prospect with a best drill hit of 6m at 4.79% copper and 0.36g/t gold from just 1m below the surface, and
  • Caprice Resources reported encouraging lead and copper grades from drilling at the historic Northampton project in WA with a best hit of 17m at 8.26% lead and 0.25% copper from a depth of 24m. On the market, Caprice added 4c to 40c.

Image: Inventiva

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