Interest rates on hold!

Today, the Reserve Bank of Australia (RBA) kept the cash rate steady at its record low of 0.25%. The RBA normally meets on the first Tuesday of every month to decide the direction of the nation’s monetary policy. It can technically either raise, lower or hold interest rates steady. But everyone knew the only real choice of today’s meeting would be whether to cut to zero or not.

So even though interest rates are still not quite at their absolute limit, in my view it doesn’t really make much difference at the end of the day if the cash rate is at 0.25% or zero.  

RBA governor Philip Lowe also flagged that rates will be at record lows for some time, stating, “the Board will not increase the cash rate target until progress is being made towards full employment and it is confident that inflation will be sustainably within the 2–3 per cent target band”.

So if low rates are indeed here to stay, here are 3 consequences I see happening for ASX investors.

Low interest rates means cash is no longer king

Cash will continue to be a lousy asset to hold over the long-term. That’s because the interest rates that you can expect to receive on cash investments like term deposits and savings accounts won’t meaningfully rise unless the RBA lifts interest rates. Thus, we can expect cash to continue to generate very little real return when considering the effects of inflation.

ASX 200 share prices will rise

Low interest rates have an indirect effect on the value of ASX shares. That’s because most valuation models use the ‘risk-free return’ of government bonds to figure out how much a share is worth. If interest rates remain low, so will the yield of government bonds.

Therefore, I expect the value of the S&P/ASX 200 Index (ASX: XJO) to be higher over the medium to long-term than they otherwise would be if interest rates were at more ‘normal’ levels (although it looks as though this is the new ‘normal’).

Expect more volatility

As a consequence of the first 2 impacts, I expect volatility to continue to be a feature of the share market while interest rates remain so low.

The fact that there are now very few avenues to building wealth outside the share market means that there will be more capital sloshing around. You will have investors who don’t really want to be in ASX shares but simply have no alternative.

As such, I expect higher loss aversion behaviours to be in play. There are going to be a lot of investors who don’t want to lose capital and are therefore more likely to sell their investments during natural downturns or corrections in the market.

In my opinion, all of this points to an increased level of volatility in shares going forward – as if we haven’t had enough of that this year already!

More reading

• 3 things ASX investors need to know about the RBA’s rate decision today
• These ASX shares were among the best performers in May, surpassing the ASX 200
• Could Goldman Sachs’ 2020 predictions for the US share market spell the end of the ASX 200s remarkable rise?
• The 3 ASX tech stocks that helped this fund manager outperform in May
• Is the a2 Milk share price too high to buy?

Motley Fool contributor Sebastian Bowen has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

The post 3 long-term impacts of near-zero interest rates appeared first on Motley Fool Australia.

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The Aurelia Metals Ltd (ASX: AMI) share price has taken off today after the small-cap ASX miner released a production update. 

Aurelia Metals is a mining and exploration company with a strategic landholding in the polymetallic Cobar Basin in New South Wales. The company operates 2 wholly-owned gold and base metal operations, Peak Mine and Hera Mine, along with 2 processing plants.

Aurelia is a gold-dominant business and in FY19, produced 117,521 ounces of gold at a group all-in sustaining cost of $1,045 per ounce. 

Why the Aurelia Metals share price is charging higher

This morning, Aurelia provided an update on group production for the June 2020 quarter to date. 

The company decided to provide these interim figures in light of the current absence of guidance due to COVID-19. Aurelia withdrew its guidance back in March given the uncertainty surrounding the spread, duration and impact of the pandemic.

Preliminary group production figures for the June quarter to 31 May 2020 are:

• Gold: 16,300 ounces
• Copper: 1,250 tonnes
• Lead: 3,300 tonnes
• Zinc: 2,300 tonnes

This represents a significant boost to the production figures announced for the March 2020 quarter.

Gold production in the entire March quarter came in at 14,304 ounces, while copper production was 871 tonnes. So in the first 2 months of the current quarter, Aurelia is already beating these production figures by 14% and 44%, respectively.

Lead is tracking along relatively in line with March figures of 4,657 ounces. However, zinc production in the current quarter is notably down from the 5,921 tonnes posted last quarter.

Nonetheless, on the whole, Aurelia is on track for a significantly improved quarter-on-quarter production result.

At the time of writing, the Aurelia share price has jumped 21.69% today to 43.2 cents. This takes the company’s market capitalisation to around $378 million.

More reading

• 3 things ASX investors need to know about the RBA’s rate decision today
• 2 cheap ASX 200 shares to buy right now
• Is the AFIC share price a buy right now?
• These ASX shares were among the best performers in May, surpassing the ASX 200
• 3 founder-led ASX shares to buy for strong long-term returns

Motley Fool contributor Cathryn Goh has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

The post Aurelia Metals share price charges 22% higher on production update appeared first on Motley Fool Australia.

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