Evening Wrap: ASX 200 slips as hawkish Fed sinks gold and mining stocks – CBA, WBC pick up the slack

The S&P/ASX 200 (XJO) finished 16.3 points lower at 9,076.0, 0.5% from its session high and just 0.2% from its low. In the broader-based S&P/ASX 300 (XKO) advancers lagged decliners by a disappointing 115 to 174.

I bet you’re looking at the gold price / your gold stocks and are wondering: Why! It was all going so well!? 🤷

Here’s the chart that matters (and it’s not the gold chart!) :

US 2-Year Treasury Yield – a closely watched proxy for the expected path of Fed interest rates

US Treasuries also sold off sharply. The one-year yield jumped 11 basis points to 4.15%, the two-year rose 14 basis points to 4.34%, and the 10-year climbed 6 basis points to 4.73% as investors rapidly repriced the US interest rate outlook.

The catalyst was a decidedly hawkish Jackson Hole message from Fed Chair Kevin Warsh, who warned the Fed still had “work to do” unless inflation was clearly returning to its 2% target. Markets responded by lifting the probability of a September rate hike from 35.4% to 55.7%, while pricing an 89% chance of a hike by December.

Gold Futures (Front month, back-adjusted) COMEX chart — note, live chart, so one extra candle to the 2-year T-Note’s chart

That repricing delivered a double blow to gold. Higher Treasury yields increased the opportunity cost of holding the non-yielding metal, while the US dollar index jumped 0.61% – its biggest daily rise in around two-and-a-half months – making gold more expensive for non-US buyers. Jackson Hole effectively forced markets to confront the possibility that the Fed is not finished tightening.

So, it wasn’t President Trump this time! 🤦

COMEX gold futures fell 2.9% on Friday before dropping a further 1.0% to US$4,483.60/oz in Asian trade. Pantoro Gold (PNR) (-5.9%), Northern Star Resources (NST) (-5.4%), Evolution Mining (EVN) (-5.0%), and Newmont (NEM) (-3.1%) were all sharply lower.

Materials (XMJ) (-2.0%) was swept up in the same risk-off mood — even as COMEX copper futures edged up 0.2% to US$6.673/lb and SGX iron ore futures gained 0.5% to US$99.25/t (their highest close since July 14), base metals and diversified mining stocks fell in sympathy with gold. The disconnect between commodity prices and equity prices reflected positioning and sentiment rather than fundamentals. Rio Tinto (RIO) (-1.8%), Sandfire Resources (SFR) (-1.7%), South32 (S32) (-1.7%), BHP (BHP) (-1.6%), and Capstone Copper (CSC) (-1.1%) all retreated.

Still looks strong, despite today’s pullback!

Financials (XFJ) (+1.1%) was the session’s clear best sector, with the big four banks doing the heavy lifting in a textbook flight to quality. When gold and mining stocks are being sold hard on global growth concerns and rate-hike fears, fund managers who must remain invested in equities find the major banks’ combination of size, liquidity, and fully franked dividend income impossible to pass up! Westpac (WBC) (+1.9%), Commonwealth Bank (CBA) (+1.7%), ANZ (ANZ) (+1.3%), and National Australia Bank (NAB) (+0.9%) all advanced solidly.

Consumer Staples (XSJ) (+0.9%) absorbed the same defensive flows — non-discretionary earnings that don’t depend on the rate cycle are precisely what investors reach for when the RBA and the Fed are both signalling further tightening. Woolworths (WOW) (+1.7%) and Coles (COL) (+1.0%) both firmed, the supermarket duo closing a month in which two consecutive results beats arguably reset the sector’s valuation case.

Communication Services (XTJ) (+0.8%) caught defensive capital through its telco names, which carry utility-like earnings characteristics — predictable, contracted revenue streams with reliable dividends. TPG Telecom (TPG) (+1.6%), Telstra (TLS) (+1.3%), and Superloop (SLC) (+1.1%) all advanced.

Energy (XEJ) (+0.5%) was the fourth best sector as the US resumed strikes on Iranian military targets, sending ICE Brent crude futures surging 2.8% to US$90.57/bbl in Asian trade. SGX Australian Premium Coking Coal futures also gained 1.3% to US$270/t, adding momentum to the coal sub-theme.

Downstream fuel retailers and refiners led the sector — Viva Energy (VEA) (+3.5%) and Ampol (ALD) (+2.3%) were the standout movers, their refining margins expanding on the oil price spike. Coal names followed — Whitehaven Coal (WHC) (+2.5%), Yancoal Australia (YAL) (+1.6%), and New Hope Corp. (NHC) (+1.3%) all advanced. Oil and gas producers participated more modestly — Beach Energy (BPT) (+0.6%) and Woodside Energy (WDS) (+0.5%) edged higher.

Information Technology (XIJ) (-1.4%) tracked a weaker Nasdaq Composite from Friday as higher benchmark yields compressed valuations for long-duration, high-P/E growth stocks. Nuix (NXL) (-4.5%), Siteminder (SDR) (-3.8%), Xero (XRO) (-3.2%), and Megaport (MP1) (-1.9%) all fell.

Sprott Uranium Miners ETF (NYSE: URNM) chart — massive volatility continues!

In other commodities moves, uranium stocks extended their pullback, tracking the Sprott Uranium Miners ETF’s (NYSE: URNM) 7.2% Friday plunge and a heavy fall in Cameco (NYSE: CCJ) (-5.6%). COMEX uranium futures fell 1.0% to US$89.50/lb — the first close below US$90 since the sector’s recent surge. NexGen Energy (NXG) (-6.2%), Deep Yellow (DYL) (-4.4%), Bannerman Energy (BMN) (-3.5%), Paladin Energy (PDN) (-1.8%), and Boss Energy (BOE) (-1.7%) all fell.

GFEX lithium carbonate futures chart — approaching key overhead supply!

Lithium stocks bucked the broader materials sector malaise, tracking an ongoing commodity price recovery — GFEX lithium carbonate futures gained 1.2% to CNY 161,460/t and Australian spodumene concentrate in China rose 2.0% to US$2,280/t. Core Lithium (CXO) (+4.1%), Liontown Resources (LTR) (+2.5%), IGO (IGO) (+1.3%), and Pilbara Minerals (PLS) (+0.7%) all advanced, capping a volatile month for the sector on a positive note.