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Australia is an iron ore powerhouse, accounting for about 37 percent of the world's exports of the commodity. How can investors get exposure to this massive market?
It is more common than air, but invaluable to our society. We use it to build, craft and make steel and other alloys, and it shows up in everything from buildings to utensils.
Iron is one of the fundamental elements used by humans. It makes sense, then, to consider iron as an investment opportunity. The ubiquity of the metal, not just in our environment, but in our daily life, shows off its value. That value can be translated into an investor's portfolio.
When we specifically talk about iron in Australia, we are talking about the largest export in the country — it just narrowly edges out coal. Both the price and the production of iron have increased over the past five years, with most of Australia's iron being mined in Western Australia.
More than 37 percent, amounting to around 900 million tonnes, of the world's iron exports come from Australia. In this regard, Australia ranks number one globally. Its nearest rival is Brazil, with 400 million tonnes of iron exports, accounting for 16.7 percent — less than half of Australia's output.
Although the iron price is down in 2022, that's only compared to the massive highs it saw last year. Ignoring 2021's iron price spike, the iron price has not been at the levels seen currently since 2013.
The outlook is that this price trend will not continue indefinitely, and might take a few hits over the next several years. The Australian government expects price averages to drop from AU$142 per tonne in 2021 to AU$66 by 2023, and the profitability of that decline is questionable. Ultimately, the expectation is that the industry will remain solid, but will not continue to experience the exciting climb that it has, up until recently, enjoyed.
So why should investors consider iron? The short answer is that iron is here to stay. Market fluctuations are one thing — these ups and downs happen — but because of the nature of iron and how much people use and need the metal, at the end of the day, this industry is essential to our way of life.
Iron ore in Australia: Key players to consider
Data for the following list was gathered from TradingView's stock screener on April 7, 2022, and the companies are listed in order of largest market cap to smallest.
Market cap: AU$260.25 billion; current share price: AU$51.94
Mining giant BHP's iron ore business includes integrated iron ore mines, rail and port operations in the Pilbara region of Western Australia. In addition to iron ore, the diversified Anglo-Australian company produces copper, nickel, metallurgical coal, petroleum and potash.
2. Rio Tinto
Market cap: AU$176.4 billion; current share price: AU$118.98
Diversified miner Rio Tinto produces iron ore, aluminium, copper, borates, lithium, diamonds, titanium dioxide and salt. In Western Australia, the company puts out five iron ore products; one of these is the Pilbara Blend, which the company calls "the world’s most recognised brand of iron ore."
3. Fortescue Metals Group
Market cap: AU$66.69 billion; current share price: AU$21.83
Fortescue Metals Group is based in Western Australia and has multiple operations in the Pilbara region. The company is one of the world's biggest iron ore producers, and sells its material globally, but mainly to China.
Don't forget to follow us @INN_Australia for real-time news updates!
Securities Disclosure: I, Ryan Sero, hold no direct investment interest in any company mentioned in this article.
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ChemX Materials (ASX:CMX) (ChemX or the Company), a materials technology company focused on providing critical materials required for electrification and decarbonisation, is pleased to provide an update on progress regarding its HiPurATM High Purity Alumina (HPA) Micro Plant commissioning and Pilot Plant Pre-feasibility Study (PFS).
- HiPurATM High Purity Alumina (HPA) Micro Plant advanced commissioning progressing
- HiPurATM HPA Prefeasibility Study (PFS) optimisation in final stages
- HPA included in Australian Federal Government Critical Minerals List
High Purity Alumina (HPA)
HPA is a high value critical material used in lithium-ion batteries to manufacture ceramic separators, which provides increased thermal insulation for improved safety and charging. HPA is also a critical ingredient in the production of synthetic sapphire used in LEDs, semiconductors, and optical lenses.
HiPurATM HPA Micro Plant
ChemX has completed commissioning of the individual stages of its HPA Micro Plant and is now undergoing final stage integrated process commissioning. The key objectives from the Micro Plant operation are:
- Optimisation of process and controls under continuous operation
- Achieving a 99.99% (4N) purity HPA on a consistent basis
- Ongoing production of samples of HPA for customer qualification testing
- Research and development on the development of additional products for assessment, including achieving a targeted 99.999% (5N) purity
The Micro Plant has been designed to be highly flexible and accommodate flowsheet modifications in anticipation of potential process improvements to achieve the Company’s plans of producing a number of products including 5N (99.999%) HPA or higher specification.
Chief Operating Officer Mr Peter Lee said “Integrated process commissioning of the Micro Plant and running the HiPurATM HPA process under continuous operation will be a significant milestone for the technology. The Micro Plant operation will allow the Company to optimise the current Pre-feasibility Study and achieve a major competitive step forward by providing product samples to potential customers. Successful commissioning will also demonstrate the potential to offer customers a scalable, modular plant to supply HPA with significantly shorter plant construction times to feed directly into their lithium-ion battery supply chain.”
HiPurATM HPA Pilot Plant Pre-feasibility Study
The HiPurATM process is expected to produce HPA with significantly lower levels of energy and reagent usage, resulting in lower capital and operating costs than most incumbent and potential producers.
The Pilot Plant PFS is progressing well, with several major milestones already achieved:
- Flowsheet extensively modelled to assess alternative reagents
- Operating costs identified
- Key equipment manufacturers engaged for quotation
- Equipment and pilot plant sizing optimization currently under way
Throughout the PFS process work undertaken to date, the Company has identified several opportunities to optimise the process design, equipment modifications and scale. These work streams will have a positive impact in terms of a reduction in capital and operating costs. As a result, the Company will extend completion of the PFS into Q3 2022 to complete these work streams.
ChemX Managing Director David Leavy commented: “The PFS has confirmed a number of the technical and operational objectives of the HiPurATM process. As is common with studies utilising advanced novel technologies, several areas have been highlighted for optimisation which are best completed as part of the current study. The short extension of time to complete the PFS will provide significant benefits for the development of the technology.”
HPA added to the Critical Minerals List by the Australian Federal Government.
HPA has been added to the Federal Government’s Critical Minerals List. Inclusion on the list reflects the high value and critical nature of HPA in building a fully integrated supply chain of battery materials domestically, further strengthening Australia’s reputation as a reliable supplier of critical minerals and sophisticated products to local and global markets. ChemX welcomes this addition and looks forward to ongoing engagement with both the Federal and State Governments to commercialise its HPA assets.
This Announcement has been authorised for release by the Board.
ChemX Materials Ltd
+61 424 153 957
+61 411 209 459
This article includes content from ChemX Materials, licensed for the purpose of publishing on Investing News Australia. This article does not constitute financial product advice. It is your responsibility to perform proper due diligence before acting upon any information provided here. Please refer to our full disclaimer here.
Housing the world's largest deposits of lithium, Chile's unique geological landscape and climate make it ideal for lithium brine extraction
As the world continues on the path towards a future dominated by clean energy, lithium's importance only continues to grow. Demand for the battery metal has already reached an all-time high, increasing by 400 percent in 2021. What's more, there is every indication that this growth will continue in 2022, with prices increasing by 126 percent in just the first quarter.
Currently, Australia and Chile are the two leading producers of lithium, respectively accounting for 46.3 percent and 23.9 percent of worldwide production. Both countries are jurisdictionally inclined to support the mining sector. However, Chile's potential could one day see it outstrip even Australia where investment is concerned.
Housing the world's largest deposits of lithium, Chile's unique geological landscape and climate makes it ideal for lithium brine extraction. The country thus has a pivotal role to play in meeting demand and establishing a stable global supply chain.
A critical component of sustainability
Climate change is an undeniable problem, one which requires a collaborative effort to address. It is for this reason that governments around the world have all agreed to pursue full climate neutrality by 2050. Because combustion engines represent an inordinate percentage of greenhouse gas emissions, replacing them with electric vehicles (EV) is essential if any nation is to achieve their sustainability goals.
Given its cross-sector industrial importance, the battery metal was already in high demand.
The large-scale manufacturing of electric vehicles has caused this demand to increase exponentially. As multiple automotive manufacturers construct gigafactories to ramp up EV distribution, the need for lithium is growing well beyond our current production capacity.
Investors and mining companies can benefit by turning to jurisdictions like Chile to ramp up supply. The world's migration towards a sustainable future simply cannot occur without lithium.
Lithium: Australia versus Chile
Although Australia houses impressive lithium reserves, the majority of the country's stores occur in hard rock deposits. Mining these deposits is relatively inexpensive, but hard rock lithium operations also tend to have narrow margins compared to other methods. In particular, lithium brine extraction offers higher yields, greater efficiency and a lower overall environmental impact.
Currently, the largest lithium producer in Australia is Pilbara Minerals (ASX:PLS,OTC Pink:PILBF). Its flagship project, the Pilgangoora operation, is situated atop one of the world's largest hard rock lithium deposits. It also jointly owns a pegmatite lithium project with Atlas Iron (ASX:AGO), the Mt Francisco project.
Geography represents Chile's first major advantage over other jurisdictions. Alongside Bolivia and Argentina, Chile lays claim to a geographic region known as the Lithium Triangle. Located in the Andes in South America, it contains an estimated 68 percent of the world's identified lithium resources.
The Lithium Triangle is home to a series of vast salt flats, beneath which sit incredibly lithium-rich brine pools. More promising still is the climate of the region, which is known for being incredibly hot and dry. This represents a considerable boon for extraction operations, which typically rely on evaporative processes.
A powerful investment opportunity
Chile's mining sector has leveraged its arid geography to great effect. The country's Salar de Atacama salt flat is the largest-producing brine deposit in the world. It is also home to several major lithium brine operations.
One of these is owned and operated by Albemarle (NYSE:ALB). Currently the largest business provider of lithium for electric vehicle batteries, Albemarle also operates a lithium carbonate plant at La Negra. According to an Albemarle spokesperson, the company has a long history in Chile backed by a unique contract.
SQM (NYSE:SQM) operates another major lithium brine operation in the salt flat. As the world's largest lithium producer overall, the company recently announced plans to reduce brine extraction in the region by 50 percent by 2030. This announcement came in tandem with a commitment to reduce water usage across all its operations by 40 percent.
Finally, just south of Salar de Atacama is situated the highest-quality lithium pre-production project in Chile. Maricunga is jointly owned by Lithium Power International (ASX:LPI), Minera Salar Blanco and Li3 Energy. Situated just 250 kilometers from Chile's coast, and 170 kilometers from the mining town of Copiapo, it's said to possess characteristics directly comparable to Atacama. Maricunga is also adjacent to Highway 31, which connects Northern Chile to Argentina.
The most significant challenge to Chile's growth, from an investment perspective, is sociopolitical. Although the country has a history of being relatively friendly towards the mining sector, its current government is exploring new legislation that could nationalize both copper and lithium. A new mining royalty bill is also in the works, which could increase tax rates by up to 80 percent.
It's worth noting that not every investor considers the current political climate to be a risk. South32 (ASX:S32), a spinoff of BHP (ASX:BHP), recently invested US$1.55 billion to purchase a 45 percent stake in the Sierra Gorda copper mine, and a lithium auction held by Chile earlier this year saw Chinese manufacturing company BYD acquire extraction rights for 80,000 metric tons of lithium.
Chile is home to the largest, richest and most valuable lithium deposits in the world. For many investors, the high margins and low cost of lithium extraction in Chile more than make up for the potential of a few political speed bumps.
This INNSpired article is sponsored by Lithium Power International (ASX:LPI). This INNSpired article provides information that was sourced by the Investing News Network (INN) and approved by Lithium Power International in order to help investors learn more about the company. Lithium Power International is a client of INN. The company’s campaign fees pay for INN to create and update this INNSpired article.
This INNSpired article was written according to INN editorial standards to educate investors.
INN does not provide investment advice and the information on this profile should not be considered a recommendation to buy or sell any security. INN does not endorse or recommend the business, products, services or securities of any company profiled.
The information contained here is for information purposes only and is not to be construed as an offer or solicitation for the sale or purchase of securities. Readers should conduct their own research for all information publicly available concerning the company. Prior to making any investment decision, it is recommended that readers consult directly with Lithium Power International and seek advice from a qualified investment advisor.
What are the biggest iron ore companies listed on the ASX? Read on to learn more.
Like many industries, the mining industry was impacted by the pandemic, but for iron ore, the effect was slightly different.
Since 2016 the price of iron had been on a slow steady rise; however, in the spring and early summer of 2021, iron ore spiked to a high of AU$294.03. This lasted only a short while as prices plummeted to AU$131.97 in the latter half of 2021.
This was the result of demand and supply chains playing cat and mouse. In response to the pandemic, China — the world’s biggest producer of steel — began major construction to keep the economy afloat. Iron ore suppliers around the world were short-staffed and unable to keep up with the demand due to COVID-19. Large demand and short supply meant higher prices, but when the suppliers finally returned to work, the demand was no longer present. Production was also paused during the 2022 Winter Olympics in Beijing.
Below, the Investing News Network has listed the biggest iron ore companies on the ASX by market cap so far this year. Data for the top ASX Iron stocks were obtained on March 31, 2022, from TradingView's stock screener.
Market cap: AU$256 billion; current share price: AU$52.39
BHP Group (ASX:BHP), formerly known as BHP Billiton, is a multinational mining company with its headquarters in Melbourne, Australia. BHP is known for mining iron ore, copper, potash, coal and nickel. The company runs six iron ore mining projects out of Pilbara, Western Australia.
South Flank, which the company bills as Australia’s largest new iron development in over 50 years, began operation in 2021. It is projected that together with Mining Area C, the two plants will produce 145 million tonnes of ore per year.
2. Rio Tinto
Market cap: AU$176.15 million; current share price: AU$120.34
Rio Tinto (ASX:RIO) creates five products on the western side of Australia including Pilbara Blend, Yandicoogina and Robe Valley. Pilbara Blend products — making up over two-thirds of their iron ore portfolio — are known for consistent quality. Yandicoogina is used by many customers in East Asia and southern China; Robe Valley, with the company’s lowest iron content, is sold for more niche applications.
In partnership with NASA, Rio Tinto plans to open its first intelligent mine: Gudai-Darri, a AU$2.6 billion iron new project with autonomous transportation and drilling systems. In 2018 funding was approved and with the lifting of COVID-19 restrictions, the first production from the plant is expected by summer 2022.
3. Fortescue Metals Group
Market cap: AU$60.93 billion; current share price: AU$21.06
Established in 2003, Fortescue Metals Group (ASX:FMG) is a mining, technology and development company. Fortescue owns five mining projects in the Pilbara region of Western Australia including the Chichester, Solomon and Western Hubs. As one of the leaders in the mining and development sector for battling against climate change, one of the company’s main goals is to have zero carbon emissions by 2030.
On March 1, 2022, Fortescue bought Williams Advanced Engineering and announced the world’s very first zero-emissions infinity train. The new acquisition will be managed by Fortescue Future Industries, the mining company's green energy and technology sector. The infinity train is set to have embedded electricity regeneration to avoid the need for recharging stations, so it will be able to use electric power to bring ore to port and return.
Don’t forget to follow us @INN_Australia for real-time updates!
Securities Disclosure: I, Marlee John, hold no direct investment interest in any company mentioned in this article.
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Critical Resources: Lithium and High Grade Base Metals Portfolio Focused on the Clean Energy Economy
Critical Resources has launched its campaign on the Investing News Network
Critical Resources (ASX:CRR) is an Australia-based critical mineral exploration and development mining company focused on assets to supply the clean energy revolution. The company's assets target essential minerals to transition to clean energy, including lithium, copper and zinc. Its flagship projects include a lithium portfolio of claims in Ontario, Canada, with its flagship project being Mavis Lake. Additional projects include its potential large scale zinc, lead, silver and copper project, Halls Peak in Australia and its Block 4 and 5 copper assets in Oman. A strong management team is leading the company to develop clear value propositions across all its projects with two active drill programs at both Mavis Lake and Halls Peak in 2022.
The company’s Canadian lithium portfolio embodies a province-scale strategy in Ontario focusing on hard rock lithium projects. The three chosen assets have previous exploration results indicating the potential for high-grade lithium mineralisation, particularly at the Mavis Lake project. Additionally, the mining-friendly province gives the company access to a robust infrastructure and access to an experienced workforce. Global electronics manufacturer LG is planning to build a US$2 billion battery-manufacturing facility in the region, demonstrating the presence of potential strategic partners in the region.
- Critical Resources is an exploration and development mining company with assets in Canada, Australia and Oman, targeting minerals critical to the global transition to clean energy.
- The company has a province-scale lithium portfolio in Ontario, Canada, with access to an experienced local workforce and supportive infrastructure.
- Critical Resources' additional assets target zinc, lead, silver and copper, allowing the company to provide shareholders with multiple opportunities to capitalise on in-demand natural resources.
- A strong management team with diverse experience in natural resources, technical, commercial and corporate finance leads the company towards achieving its development goals.
This Critical Resources profile is part of a paid investor education campaign.*
What is decentralised finance and what should investors know about this space in Australia? Find out here.
DeFi, short for “decentralised finance,” is a promising component of our brave new crypto world. The DeFi sector in Australia is here to stay, but what should investors know about this space?
DeFi offers an alternative to traditional financial services and institutions by bypassing banks, brokers, exchanges, and other “middlemen” which serve as financial intermediaries that regulate the markets. In effect, DeFi is evolving into a parallel financial framework that facilitates and records transactions involving financial instruments and payment mechanisms chiefly related to trading and lending operations.
The DeFi market is currently expanding at an explosive rate. According to figures released by DeFi Llama, cryptocurrency investors have put up $250 billion worth of assets as collateral in various DeFi projects, funds which are then lent out in the form of cryptocurrency loans. As more and more institutional investors enter the DeFi sector, the market is expected to expand to $800 billion by the end of 2022.
Bitcoin and Ethereum, the world’s two leading cryptocurrencies with market caps of $882 and $421 billion, respectively (as of the beginning of April), are digital assets whose ownership is documented in a public transaction ledger known as the blockchain. A traditional financial institution such as a bank, credit card provider or payment facilitator like PayPal, maintains its own private records and uses its own servers to process transactions. Cryptocurrency transactions, by contrast, are processed on the computers of a global network of users and recorded publicly (though pseudonymously) for the entire network to see.
As currently constituted, the emerging DeFi sector provides holders of cryptocurrency the ability to bypass the world’s traditional network of bank and other financial gatekeepers by means of independent, self-regulating computer programmes that rely on blockchain technology.
These decentralised applications (DApps) of blockchain technology offer a more efficient and streamlined mechanism to access financial services by creating an alternative ledger system known as “distributed ledger technology” (DLT) as opposed to VISA, PayPal, or other legacy digital payment services. By harnessing the power of blockchain, a new global ledger system has taken shape that relies on a global web of interconnected computers to record and track all transactions. Not only does DLT store such transaction data but it also identifed the parties involved in any transaction.
This allows anyone with a crypto wallet and an internet connection unlimited access to DeFi services. Users can trade currencies and move assets whenever and wherever they want and avoid antiquated and cumbersome bank transfer protocols and related fees. DeFi users are however required to pay “gas fee” charges for crypto transactions in many cases.
DeFi is thereby expanding the fundamental premise of digital money – Bitcoin and other cryptocurrencies – by allowing individuals and companies alike to execute financial transactions by means of a new and fully transparent system.
The DeFi market is currently expanding at an explosive rate. According to figures released by DeFi Llama, cryptocurrency investors have put up $250 billion worth of assets as collateral in various DeFi projects, funds which are then lent out in the form of cryptocurrency loans.
Parallel to the expansion of the cryptocurrency market, DeFi will become increasingly able to provide loans via the various lending platforms that are popping up around the world. In effect, DeFi lending platforms are digital banks, taking money from cryptocurrency depositors and lending it out to borrowers.
Instead of traditional bank loans, the DeFi platforms rely on “smart contracts” – primarily the Ethereum blockchain – which uses computer code to authorize, execute and verify transactions.
Lending markets serve as one of the most intriguing and promising applications of DeFi by connecting borrowers to lenders of cryptocurrencies by means of platforms that enable individuals or companies to either borrow cryptocurrencies or provide crypto loans.
In order to obtain a loan, borrowers must put up collateral – usually ether, the crypto currency issued by Ethereum, the principal system on which all cryptocurrency applications are based. Borrowers tend to receive loans in the form of stablecoins pegged to traditional currencies like the dollar.
Alternatively, borrowers can post collateral in the form of Bitcoin, which then gets depositied in a crypto pool that is overseen by a smart contract. Should the price of Bitcoin take a precipitous fall, the smart contract automatically liquidates the collateral to protect depositors who have provided the loan funds in the form of stablecoins. Meanwhile, lenders earn money from the interest rate the platforms charge for lending out their funds.
Decentralised exchanges use smart contracts to enable traders to execute orders without an intermediary. Users trade directly from their wallets by exchanging one currency for another, e.g. Bitcoin for US dollars, euros for Ether, by means of the smart contracts behind the trading platform. Traders are solely responsible for managing and securing their funds and risk losing their holdings if they lose their private keys or send funds to the wrong addresses. The advantage of bypassing financial intermediaries and preserving anonymity is offset to a degree by the lack of security a bank or a centralized exchange provides.
A stablecoin is a cryptocurrency pegged to the value of a non-crypto asset (i.e. the US dollar) that offers price stability which in turn provides greater security for DeFi collateralized lending. Tether is one of the leading stablecoins.
Australia: Making a splash in DeFi
Australia currently ranks 12th out of 154 countries according to the Global DeFi Adoption Index published by Chainanalysis. This index uses three metrics in its assessment of DeFi adoption: On-chain cryptocurrency value received by DeFi platforms weighted by PPP per capital; total retail value received by DeFi platforms; and individual deposits to DeFi platforms.
Australia’s DeFi sector is currently experiencing a boom led by various companies such as Synthetix (SNX), which hopes to become a decentralised version of derivatives exchange BitMEX, Maple Finance (MPL), which offers loans for crypto institutions, and newly launched Tiiik, which offers a digital wallet that allows investors to earn interest on DeFi products. Other new Australian DeFi players include Thorchain, Ren and mSTABLE.
While the DeFi sector is currently in its first develomental phase much like Bitcoin in its early days, individual investors have three main ways of investing in this evolving industry. First, one can obtain cryptocurrency-based loans; second, one can earn interest (by lending (staking) their crypto holds, looking to invest in DeFi coins. (Block Earner, for example, is an Australain fintech outfit that provides a DeFi online savings platform which pays 7 percent interest on deposits.) Third, investors can simply invest in DeFi coins in the same way that one can purchase cryptocurrencies.
Investors willing to take a plunge in DeFi should be aware that the underlying volatility of the cryptocurrency markets can rattle the DeFi sector in the event of sharp declines in Bitcoin, Ethereum and other cryptos. There is also the added spectre of rug pulls, a relatively rare but catastrophic form of fraud.
Rug pulls see unscrupulous DeFi developers create a new token, pair it to a leading cryptocurrency such as tether, set up a liquidity pool, and then use secret back doors encoded into the coin’s smart contract to mint millions of new coins before liquidation. This was the case in 2020 when SushiSwap developer Chef Nomi cashed in his SUSHI tokens after raising over a billion dollars in collateral finance which caused the price of SUSHI to crash to near zero.
Don’t forget to follow us @INN_Australia for real-time updates!
Securities Disclosure: I, Harold Von Kursk, hold no direct investment interest in any company mentioned in this article.
Interested in the relationship between the gold price and the ASX? Here’s how the two interact and how you can benefit from it.
As the gold space becomes more prominent in Australia, it can be beneficial for investors to understand the unique relationship between the gold price and the ASX.
The two sources of trade are able to push and pull one another, although in general the price of gold tends to indirectly follow the movements of the ASX.
Read on for a breakdown of gold’s history in Australia and what’s currently affecting the price of gold. We’ll also explain the relationship between gold and the ASX, and how you can benefit from it as an investor.
Gold price and the ASX: The history of gold in Australia
Gold’s significance in Australia began in 1832 with James McBrien, who found traces of the yellow metal near Bathurst, New South Wales. However, for the most part, early discoveries of gold were kept under wraps, because authority figures were concerned that convicts, soldiers and public servants would abandon their work and other responsibilities to search for the metal.
That changed in 1851 when Edward Hargraves and his colleagues found gold, again near Bathurst. This time, the discovery was made public, and within a month, close to a thousand men were searching for the metal in an area called Ophir, named after the biblical story about King Solomon’s gold city.
There were more gold discoveries in the state of Victoria in 1854 following the rush in Bathurst. Tens of thousands of immigrants from around the globe headed to the Australian colony in search of the yellow metal, with Ballarat and Bendigo in Victoria becoming major gold sites.
Between 1848 and 1858, Australia’s population tripled to more than 1 million people. Gold fever then hit Coolgardie and Kalgoorlie in Western Australia in the early 1890s, when key discoveries were made in those areas.
During this time, exciting gold finds were spurring the development of inland towns, communications, transport and foreign trade. In fact, since Australia’s first recorded gold discovery, the metal has changed where and how people live within the country. Many towns were developed using wealth generated from mining gold, and Australia is also home to ghost towns that were deserted when the gold sources that kept them afloat ran out.
Even though the precious metal has made large contributions to Australia’s development, its importance declined during most of the 20th century as other metals became more prevalent and economically significant. Gold later underwent a resurgence in the 1980s and 1990s, when the use of new technology allowed lower-grade ores to be processed economically.
Today, Australia is stepping back into the spotlight as one of the most prolific gold-mining regions in the world. In terms of gold prices throughout the years, the metal has experienced a mostly upward trajectory in Australian dollars.
Gold price and the ASX: What’s moving the gold price
At the start of 2022, the gold spot price was around AU$2,500 per ounce, which is much higher than it was almost 20 years ago. In the year 2000, gold hit AU$481.68, a high at the time, and 10 years later it was still climbing, breaching the AU$1,400 mark.
The metal made more gains between 2009 and 2011 before backsliding. However, the downturn did not last long, and by 2015 gold prices were slowly ramping up again, reaching its highest in August of 2020 at AU$2,618.67.
Performance of gold price from 2006 to the present.
Chart via TradingView.
While there are a variety of factors that influence the price of gold, some have more weight than others. Below is a guide on the main elements that are shifting and shaping the price of metal.
The Australian dollar
The first element supporting the yellow metal is the fact that the Australian dollar did not have the strongest year in 2020. In general, as the dollar declines, the yellow metal will see an upward price movement.
Performance of gold price and Australian dollar from 2006 to the present.
Chart via TradingView.
Reserve Bank of Australia
Much like with the US, interest rates have been raised in Australia as of late. In May 2022, the central bank lifted rates for the first time since 2010 by a quarter point basis, with investors expecting it to continue to increase rates at that pace.
However, following its June policy meeting, the Reserve Bank of Australia moved its cash rate by 50 basis points to 0.85 percent — its highest hike in 22 years.
Gold tends to retreat directly after rates are increased, but it is not always the case. Higher interest rates make stocks, government bonds and other investments more attractive to investors.
Reserve Bank of Australia’s interest rates from the past five years.
Chart via Trading Economics.
The United States
The ongoing trade war between the US and China has affected overall global markets, and in Australia it has sent investors running towards the safe haven nature of gold. The spat between the two powerhouse countries has been ongoing for four years, causing a tariff tit-for-tat that has resulted in volatility in the markets.
These tensions have been eased slightly in recent years by the signing of a phase one trade deal in January of 2020 between the two nations, and recent talks between the leaders of both countries.
Any time global tensions rise, the price of gold will rise as well. Usually, these events only trigger a short-lived rise in precious metals like gold, as investors turn to gold for a safe investment in the face of international conflict. Most recently, the war in Ukraine has caused gold prices to shoot up.
It’s likely that gold prices will continue to be volatile depending on how the war progresses. However, if historical precedent stands true, the support for gold will be short lived and drop once tensions ease and the need for a safe haven investment goes through a correction.
Performance of gold price during the 2014 Crimean annexation by Russia.
Chart via TradingView.
The above chart displays the price of gold in Australian dollars during the 2014 Russian invasion of Ukraine’s Crimea peninsula. It shows how the price of gold soared during February and March, when the invasion took place. After this period, gold returned to its previous trend. Although the current events are of a much larger scale and predicting how they will develop is impossible, the past history of gold’s price during geopolitical conflict is worth considering.
Bond market and exchange rate
Another element that is currently affecting the price of gold is a dwindling 10 year government bond yield. Since 2008, 10 year yields have dipped from over 6.59 percent to a low of under 1 percent in 2020. Currently, 10 year bonds are recovering from the pandemic low and sit at 2.77 percent.
Australian government 10 year bond yields since 2006.
Chart via Market Watch.
Compared to US 10 year yields, which have fallen from 4.05 percent to 2.47 percent over the same period, it is clear that the Australian bond market has taken a larger hit. Because of this, the exchange rate for Australian and US dollars has fallen and has led gold to outperform in Australian dollars.
“The bottom line is that, while the AUD gold price is high, it’s entirely justified why it is trading above AU$2,000 per ounce. Whether it’s a faltering local economy, a fragile property market, negative yield differentials, low and falling rates or a weakening currency, there are many good reasons why astute investors typically allocate 5 to 10 percent of a diversified portfolio to gold. The strategic case for gold is as strong as ever,” the World Gold Council explains.
Gold price and the ASX: How gold affects the market
Gold’s relationship with the ASX is unique in that the metal indirectly follows the movements of the market, as opposed to resources like oil and gas. The yellow metal has the tendency to be viewed as a counter-cyclical asset, which means that its value increases during market downturns.
Due to gold’s large global presence and high intrinsic value, the precious metal is often seen as a universal currency. When the outlook of the equity market looks bleak, or corporate earnings are destined for doom, investors will flock to the precious metal.
On the flip side, when the economy, and in turn the ASX, is on the rise, investors tend to abandon the yellow metal in favour of equities.
However, this is not to say that the relationship between gold and the ASX is a negative one. It is more of a give-and-take commitment. The metal continues to have an impact on jewellery and jewellery-related products. Additionally, gold is used in dentistry, aerospace and electronics — all of which affect publicly traded companies and as a result the ASX.
This relationship between the gold price and the ASX has turned the precious metal into something of a hedge when it exists within an individual’s portfolio as a source of diversification, which is when market participants hold investments that are not related to one another.
Since gold has a history of having a negative correlation to stocks, bonds and other financial instruments, it becomes important that investors get diversified by owning a portfolio that combines gold with stocks and bonds in order to reduce both volatility and risk. While it is true that the yellow metal goes through times of volatility, its spot price has always maintained its value over the long term.
This is an updated version of an article first published by the Investing News Network in 2020.
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Securities Disclosure: I, Matthew Flood, currently hold no direct investment interest in any company mentioned in this article.