Ground Breakers: Good news for gold miners as experts predict Fed will turn more dovish

US Fed lifts rates again, but experts think pause could be on the way
Gold lifts as expectations grow a dovish stance could send bullion to record highs
Northern Star lifts resources, announces new gold discovery near Kalgoorlie

Is the Fed done hiking rates?

Not quite yet, but gold miners are hopeful with some experts suggesting last night’s 25bps rise, taking the US fund rate to 5-5.25%, may well be the last of a 10-hike long cycle.

“The Fed is concerned that tighter credit conditions will weigh on economic activity and hiring, while helping maintain disinflation trends,” OANDA senior market analyst Ed Moya said after the release last night.

“Credit tightening is about to cripple the economy and it appears that as long as we don’t get a perfect storm of hotter-than-expected labor and inflation data, the Fed will keep rates on hold for at the very least till the end of the year.

“The lag with shelter prices and weakening economic activity should assure inflation will fall below 4% before the end of summer, possibly making a run at the 3% handle. The Fed should be in a position to keep a lengthy hold until early next year.”

Good for gold

ANZ disagrees, with senior economist Felicity Emmett saying the bank thinks one more rate rise is likely next month and stay at peak levels through the second half of next year.

“The impact of recent banking stress on credit conditions remains uncertain, however,” she said in a note this morning.

Fed chair Jerome Powell reiterated that it remains committed to returning inflation to the bank’s 2% target after a year which has seen its monetary rate lift 5%.

But he said it is seeing the effects of monetary restraint.

“We are seeing the effects of our policy tightening on demand in the most interest-rate-sensitive sectors of the economy, particularly housing and investment,” he said.

“It will take time, however, for the full effects of monetary restraint to be realised, especially on inflation.”

Gold futures lifted as high as US$2037/oz with spot gold lifting almost 1% to US$2031/oz in the US market.

The LBMA price was more conservative at around US$2014/oz. Regardless, expectations of a pause are good for gold, which is gaining in value against lower US bond yields.

Moya says the long journey to record highs could be crowned with the Fed turning more dovish.

“The journey to record highs has been a long one for gold, but if the Fed is truly done lifting rates, further tightening of credit conditions could be the key catalyst,” he said.

“Gold is rising as the Fed’s dovish hike may have sealed the fate for the dollar.

“The Fed could be forced to hike again, but that would require a stronger driving force than the cumulative impact of their 10 rate hikes and fresh economic and financial developments.”

Materials market lifts

Northern Star Resources (ASX:NST) is now up more than a quarter year to date and rose over 3% on the news overnight.

The Super Pit gold mine owner picked a lovely, sunny day to release its annual resource and reserve statement.

With 57.4Moz in resources, NST added 3.5Moz after mining depletion, with reserves stable at 20.2Moz.

That includes a new maiden resource of 1.2Moz at 1.1g/t at Red Hill, located around 3.5km from the Kanowna Belle gold mine and a new discovery called Hercules less than 30km from the Super Pit, including hits of 21m at 3g/t, 16.7m at 3.6g/t and 11m at 2.8g/t.

NST has also completed its first drilling at Star, hitting 9.7m at 52.9g/t, 6.9m at 13.2g/t and 4.9m at 15.8g/t 1.3km south of its Pogo mine in Alaska.

“Northern Star’s three production centres – Kalgoorlie, Yandal and Pogo – come with incredible and genuine world-class mineral endowments that provide us with the confidence to plan organic and profitable growth of the company’s production footprint,” MD Stuart Tonkin said.

“Our ability to regularly replace the volumes of gold mined is testament to the high-quality and focused work of the Northern Star team.

“Our team continues to excel at discovering new gold mineralisation near our existing operations, particularly in the Kalgoorlie district.

“The Hercules discovery is a good example of this type of new find that will provide us with additional growth options as we continue to unlock the potential of our assets by matching gold resources with processing capability.”

Northern Star wasn’t the only gold miner in rarefied air today, with the All Ords gold sub-index up 2.12% this morning, and now up almost 15% over the past 12 months.

Evolution Mining (ASX:EVN) lifted 5.96%, St Barbara (ASX:SBM) rose 5%, Regis Resources (ASX:RRL) climbed 3.27%, Resolute Mining (ASX:RSG) jumped 7.14%, West African Resources (ASX:WAF) was up 3.8% and Red 5 (ASX:RED) lifted 4.24%.