Gold the clear winner from US election amid hopes for lower rates and oil prices

The Democratic Party’s clean sweep of Congress in the US midterm elections has proved to be the tonic the ASX gold sector has been hanging for after enduring an absolute beating in the past month.

The blue tsunami in the midterms at the expense of President Trump’s Republicans triggered a fall in the dollar and interest yields – two positives for the gold price, which has rebounded from US$3,893 before the election to $US4,125/oz in Thursday’s trade.

The 6.2% price gain was also aided by the plunge in oil prices on expectations that with President Trump entering a lame duck period there would be a de-escalation of tensions in the Middle East, taming inflation expectations, again benefitting the gold price,

ASX gold equities responded with gusto to the yellow metal’s move back through US$4,000/oz, with the resultant Aussie dollar gold price back in sight of $6,000/oz - a level that ensures fat margins for the producers and improved investor sentiment for the developers and explorers.

In Thursday afternoon trade, the biggest ASX-listed gold producer Northern Star (NST) was sporting a 9.9% share price gain. It was outdone by Evolution (EVN) with a 14.2% gain, Capricorn’s (CMM) 14% surge, and a rampant Genesis (GMD) with a 15.4% gain.

The return of life in the gold sector is sweetly timed for next Wednesday’s scheme meeting for Genesis’ merger with Vault (VAU) to create a new gold powerhouse on the ASX, with initial pro-forma annual production of 625,000-675,000oz, predominantly from WA’s Leonora-Laverton district.

Genesis boss Raleigh Finalyson will also be updating shareholders the following day at the annual meeting of Genesis.

It is a feature of the merger that it comes with a promise of $2 billion in post-tax synergy benefits which largely reflects the proximity of the key operations of the two companies. Given Finlayson’s record of delivering or beating guidance, it is a handy amount to bank over 10 years regardless of what the gold price is doing.

The scale of the gains by the ASX gold stocks in Thursday’s market left the rest of the mining market in the shade.

In terms of overall importance though, the 7% gain for Rio Tinto and the 6.1% gain for BHP was telling, reflecting the belief that the Democrats’ clean sweep means the end to President Trump’s tariff wars, which is a positive for global trade.

There was also the benefit of lower oil prices delivered by the midterm results to count for the mining majors and the rest of the mining sector.

Those benefits were judged by investors to outweigh the impact on the two majors should the copper price retreat from near-record levels post the midterm elections.

Copper reached record levels due in part to massive stockpiling in the US to beat a proposed tariff on ore concentrates and cathodes by the Trump administration.

The tariff has not seen the light of day because of advice that it was inflationary at a time when the Republican Party was already under pressure on the issue. The midterm election results kill off the copper tariff for good, potentially putting the copper price under pressure from the unwinding of US stockpiles in the US.

But again, as Thursday’s gains across the gold-led rally in the ASX mining stocks demonstrated, investors see more upside than downside from the clean sweep by the Democrats. Whether it becomes a full-blown Santa rally remains to be seen.

What is more certain is that capital raisings will come thick and fast the longer the rally lasts, potentially M & A activity as well.

Uranium:

There was also a welcome return to form by the ASX uranium stocks in Thursday’s market.

The main names in the sector gained between 4 and 7% which, like the gold sector, follows a month of share price haemorrhaging.

Traditionally there has been more support among Republicans than Democrats for nuclear power. So the clean sweep by the Democrats could have been seen as a negative for uranium/nuclear power.

But in recent years – and following policy support from former President Biden for nuclear power – the approval rating from Democrat voters and policy makers at the state level has climbed above 50%.

The rejection of President Trump in the midterm elections could also be taken to mean that there will be a slowdown in demand from the AI sector given the concerns the Democrats have expressed about the intrusion of data centres into communities, and their draw on water and energy resources.

There is some truth in all that but the reality is that the forecast high-growth to 2050 in nuclear power is only partly due to AI demands. The base case for high growth scenarios draws more on the broader global electrification push to fight global emissions.

More growth in zero-to low emissions energy is needed and uranium/nuclear power has a role to play, something that was confirmed in the policy actions of the Biden administration.

Against that backdrop, uranium prices have continued to march higher. The long-term or contract price edged up from an average of US$96.50/lb in September to US$98/lb in October. In October last year it was $US85/lb.

Canada’s uranium and nuclear power giant Cameco reckons that the upside in the uranium price from what is already a historically high price in nominal terms “looks terrific”.

Cameco president and chief operating officer Grant Issac told the group’s recent September quarter earnings call that the “most important point for everybody interested in the uranium space is to remember that we have seen a very substantial reset in the long-term price and spot price of uranium on very little long-term demand”.

“Utilities collectively have not been buying on an annual basis what they have been consuming off of old contracts,” Isaac said.

“That, by definition, means that there is a massive de-stocking going on of uranium supplies globally, because if you are not buying forward what you have just consumed, the difference has to be made up by something.

“We find ourselves in a market where prices have reset significantly, and we have not even hit replacement rate demand yet.

“For an incumbent nuclear producer, this is not only very exciting, but it also reminds us this is a time to be disciplined, because replacement rate contracting, either at or above, is when really strong price formation begins to set in.”

It was warming stuff for the ASX-listed uranium stocks which have had a horrible 12 months, sometimes because of their own operational shortcomings rather than a lack of interest by investors in the uranium price.

But should uranium prices continue to push higher to more than US$100/lb for the reasons outlined by Cameco’s Issac, the ASX sector will light up in a big way regardless of whether the next President of the US is a Republican or a Democrat.