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February 27, 2024

Gold Reacts to CPI, Debt Ceiling Looms; Livent/Allkem to Merge

Gold Reacts to CPI, Debt Ceiling Looms; Livent/Allkem to Merge

All eyes were on the latest inflation data out of the US this week. The consumer price index (CPI) rose 0.4 percent month-on-month in April and 4.9 percent year-on-year, which was the first reading under 5 percent in two years.

Core inflation, which removes food and energy from the equation, came in higher, up 5.5 percent year-on-year.

Market watchers are largely taking the CPI stats as a sign that the US Federal Reserve’s efforts to tame inflation are working. It hiked interest rates again last week, bringing the target federal funds rate to a range of 5 to 5.25 percent.

Gold leaped up to US$2,045 per ounce in the immediate aftermath of the CPI news, but had pulled back to the US$2,015 level by the time of this writing on Friday (May 12). The yellow metal fares well when interest rates are low, and it seems to be reacting to the increased possibility of a pause or even a pivot at the Fed’s next meeting, scheduled for June 13 to 14.

Beyond the Fed and inflation, a long list of factors continues to affect gold. Concerns about the banking sector remain, with PacWest Bancorp (NASDAQ:PACW) now generating headlines, and the US debt ceiling attracting attention as well — if it’s not raised by June 1, the country may default, a situation that would have major global consequences.

That said, it’s worth noting that the US has never defaulted on its debt — in fact, since 1960, Congress has acted 78 separate times to permanently raise, temporarily extend or revise the definition of the debt limit.

Livent and Allkem to join forces in mega merger

Stepping away from gold, a major deal was announced this week in the lithium space. Top producers Livent (NYSE:LTHM) and Allkem (ASX:AKE,OTC Pink:OROCF) have agreed to merge in a deal worth US$10.6 billion.

The all-stock merger of equals is scheduled to close at the end of 2023, and the companies believe that as a new entity they’ll be able to deliver more lithium in a faster and more reliable manner.

Livent’s lithium operations are mainly in Argentina, although the company also holds 50 percent of Nemaska Lithium in Canada. Allkem has a focus on Argentina too, plus assets in Canada and Australia.

Lithium is an important material in electric vehicle batteries, and demand continues to rise as the green energy trend moves forward. While it looks like Livent and Allkem’s transaction is full steam ahead, other high-profile lithium M&A activity hasn’t been as fruitful — earlier this year, Liontown Resources (ASX:LTR,OTC Pink:LINRF) rejected a takeover offer from Albemarle (NYSE:ALB), while Essential Metals (ASX:ESS,OTC Pink:PIONF) declined a bid from a joint venture formed by Tianqi Lithium (OTC Pink:TQLCF,SZSE:002466) and IGO (ASX:IGO,OTC Pink:IPGDF).

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Securities Disclosure: I, Charlotte McLeod, hold no direct investment interest in any company mentioned in this article.

Editorial Disclosure: The Investing News Network does not guarantee the accuracy or thoroughness of the information reported in the interviews it conducts. The opinions expressed in these interviews do not reflect the opinions of the Investing News Network and do not constitute investment advice. All readers are encouraged to perform their own due diligence.

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