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Wednesday, November 06, 2013

Current gold and silver price

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Sunday, October 20, 2013

Why do journalists hate gold?

Ever wondered about the quality of your daily news. Well, I'm going to disect the latest offering on 'gold' according to a Sydney Morning Herald journalist.
“I like gold as much as you but unfortunately, most of the time it can't be trusted as an investment”. 
This poses the question of why he likes gold? Does he like the colour of it. Otherwise he just looks like an anti-intellectual idiot. After all, doesn’t gold become good buying at some point? It is volatile, so would you not at least consider gold to be good at a point? If there was to be a point; would it not be after a 50% correction? Not even when gold miners are struggling to make a profit?
“I'm not talking about gold mining shares, though you may as well throw them in as well. Over the past year the gold share index has slumped about 60 per cent, when other stocks have risen an average 20%”. 
Yes, but you are talking about a fall of 60% off a high; not off their long-term low. Neither should anyone consider any investment a ‘buy and hold’ proposition; least of all when you have governments distorting the economy. If you were to hold any investment in a debasing currency market, it would be gold, if only because of the ‘boom-bust’ cycle, but there are other choices if you ‘trade’ the market.
“The problems for the miners have been poor management, big capital outlays, rising costs and competition from bullion-holding, exchange-traded funds”.
Really, poor management is a reason to dump gold metal, gold indices and all mining stocks? Not reason enough to look at the quality of management, or even diversify? The fact that miners need capital is actually one of the reasons they are ‘oversold’ and become compelling takeover targets. Yes, costs for miners have risen, and as a result, gold miners are now struggling to make money. This is reason to buy or hold them, not to sell or ignore them. If gold remains at these levels, gold mines will close, or not open. Why would ‘bullion holdings’ or investing be a problem; that is a source of demand underpinning the entire ‘gold-related’ market?
“Gold had a sensational bull run for 12 years during which it jumped sevenfold. That was then. As we speak, the US dollar price has dropped by one-third from its peak 18 months ago. In Australian dollars it's down by about 20 per cent”.
That is not surprising really. Commodities are volatile, and that is good, because volatility is a source of rapid earnings.
“What's more, in real terms it peaked a good 30 years ago… After allowing for inflation, gold should be $US2300 an ounce to hold on to its previous peak in 1980”.
Again, that’s reason to buy, not to ignore the fact that its under-valued.
“But the ultimate test was the debt ceiling crisis, when the US could have defaulted on its bond payments. It flunked. When the very paper base of the financial system - US government bonds - couldn't be trusted, bullion should have been beside itself with excitement. But no. It dropped. And just to rub it in, that was in both the US dollar-denominated price as well as in Australian dollars”.
This is silly logic because the ‘damage’ to financial markets has already been done. The ‘damage’ is not the uncertainty of financing the US deficit. The uncertainty’ would be the spectre of governments struggling to sell bonds to the Chinese or taxpayers withholding their sanction of the tax system. i.e. The prospect of Chinese ‘opposition’ to the US government, which is not likely because they share the same system; or the spectre of the US military or police losing control to a libertarian army. Otherwise the only factor likely to push up gold is:
1. Expectation of falling asset prices
2. Actual rise in ‘cost of living’ inflation
“Perversely, it's risen since a default was averted by suspending the debt ceiling until February 7. Well, April really, because that's when Treasury's ''extraordinary measures'', by which it means raiding public service retirement reserves, will run out. Perhaps gold is girding its loins for a second chance”.
Actually, these considerations have no bearing on gold. Gold rose because its at a technical support level.
“It's also had a falling US dollar in which it's denominated going for it that should have made it more valuable, but to no avail”.
It would only make it more valuable in US terms; not in absolute terms, which bares no consideration for the US fluctuations.
“The problem for gold is the market never took the default threat seriously, either because it foresaw the compromise being struck at the eleventh hour, or the Federal Reserve would step up, rather than taper down, as the market dreads, its bond purchases”.
Neither proposition is actually bad for gold. Greater money illusion will just see gold rise; and an undermining of the monetary system with a collapse in asset prices will also be good for gold, i.e. If people lose confidence in government.
 “Even the growing support among financial advisers for holding a small part - say 5 per cent - of your wealth in gold isn't because they think it'll be a ball tearer. It's because it goes its own way willy nilly, so there's something to fall back on in a sharemarket correction. The very fact that it's erratic is its virtue”.
The author seems to miss the fact that ‘asset prices’ are very high, and some are even describing them as ‘in a bubble’. The question then becomes –is gold relatively cheap, and his argument is apparently yes, but there is no reason to keep it.
“The challenge for gold is that there's no inflation, despite the unprecedented money-printing in the US and more recently Japan”.
Actually, there is plenty of ‘inflation’, it’s just not the type of inflation that this guy looks for. Being an ‘empiricist’ he solely looks for ‘physical signs’ or evidence. In the process he lacks any intellectual understanding of gold or indeed inflation. Asset price inflation is the order of the day. So what happens when asset prices fall? Well, people sell. What happens to debt levels when there is a corresponding fall in the money supply? Well money has to be printed, or other things have to rise in price to compensate. In the short term, such corrections can actually see gold prices fall in the short term. But eventually it is gold that recovers because it is cheap. We might ask – if gold is so bad – why did I ever rise to $1900/oz?
“On the contrary, both countries are trying to avoid deflation - falling prices and incomes. And when inflation does rise, so will interest rates, which will be more help than non-income-earning gold”.
No, both countries are trying to prevent ‘asset deflation’ because this will cause banks to foreclose on non-performing assets when people lose their jobs. Governments need to buoy asset prices in order to keep ‘cost-of-living’ inflation low.
“You can even buy CPI-linked bonds guaranteeing no loss of capital in real terms which also pay an income, albeit modest, along the way”.
Yes, you can, and if you believe governments will be around to pay them, or that gold is not going to rise, then that might be a short term place to put money…but then, governments are debasing money, as he has already alluded to, so why would you believe the contemporary measure of inflation?

The previous critic of gold with the SMH was Michael Pascoe. I critiqued his appraisal several years ago. Let's she how he faired with his analysis. Did he make any money? Was he right about gold? Well, let's look at the 10-year gold price chart:
1. June 2011 - Michael Pascoe talks down gold - then gold ends up rallying from $1400 to $1900/oz...almost immediately.
2. Couldn't find another article to be fair....but I know I've archived several.

Of course, this leaves me wondering why journalists hate gold? Well, perhaps they really love it, i.e. Maybe they are genuinely hypocrites who love to give gold to their wives. Maybe they just hate it because they are told to hate it. i.e. Maybe on some level media CEO's like people to be 'psychologically' tragic enough to care about the news, but not economically tragic to stop investing, or buying newspapers. Its probably a fine line. You will struggle to find a newspaper that talks down an that's pretty well the answer. Its just an old-fashion conflict of interest. Personal integrity precludes me from being so disposed. That's not to say I don't have a conflict of interests, because I have plenty. It just doesn't change my judgement. i.e. The conflict does not shape my choices. It might delay them. i.e. I might withhold a judgement say in GRY because I want to sell. But I'd not tell people it was good short term if I was selling short term. And I'd not do both at the same time. i.e. I'd not say buy when I'm selling, unless I was motivated by non-appraisal reasons, i.e. Like I needed the money for something, or had a better buy in time. Its all about personal integrity.

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Tuesday, May 28, 2013

Gold at critical point

Today is a good day to buy GRY.ASX because gold is about to reach a critical juncture; the closure of an ascending wedge, which will either see gold fall back, or mount a rally. Gold traders will be watching which way gold goes. Several times over the last month, gold has met resistance at the $1400/oz level, so traders will be looking for a sustained break and support above that level. This will of course be a compelling reason to buy gold stocks. Now, I'd buy today because if there is a $50/oz breakout, gold stocks will probably open 20% up, and they might not be sold off. If you wait for that, then you should wait for a sell off.
If I'm wrong, then you just acquire more at a later date when the stock finds a lower support. At the end of the day, we are interesting in tangible gold in the ground, massively discounted, so we are paying a patience game, waiting for the day the emerging miner will realise that revenue. We don't need to be right on the downside since the stock is already massively oversold, even if gold goes to $800/oz, the market cannot sustain prices that low, as nearly all mines would close. This is the value of mining stocks. The only risk is collectivist governments.

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Thursday, May 16, 2013

Gold destined to defy short-term sentiments

There is a lot of negative sentiment around about gold. In fairness, this news is not entirely fair. The reality however is that markets only strike fairness when the majority of convinced of its imminence. Markets are ‘democratic’ institutions when the great wealth of private and public sectors is in the hands of unthinking custodians. So what are the pertinent factors:
1. Technical picture – Gold is bearish in the sense that it’s on a downtrend; but the fact is that, whilst it broken the $1520/oz support, it’s found new support at $1480-1490/oz, albeit maybe only temporarily. If this support fails, then gold might well fall to $1000/oz. Of course, the longer gold stays above $1480, the stronger the support.
2. Strong equity markets – The argument is that strong global stock markets are a source of weakness for gold. The fact however is that ‘adverse equity markets’ are often a source of weakness for gold. The reality is that many people simply hate gold. They don’t believe in it, and yet it defies them at every turn. It is silly to argue that equities are strong because they are strong until they are weak. A correction in equities could result in a temporary sell off in gold to cover weaker equity exposures, but gold will eventually prevail because its price is not paper-based.
3. Low inflation: The argument is that we are in a “low-inflation environment in the major world economies, with even some talk of deflationary price pressures building. Deflation is the archenemy of all raw commodity markets, including the precious metals”.  This is actually not true. Whilst gold does correlate with inflation; it also correlates with deflation. Ultimately it depends on the reason for the deflation. If the deflation is caused by real wealth creation, gold does indeed fall, because people trust currencies. When deflation is because people are unemployed and there is an excess of capacity, high asset prices, low interest rates, then this is simply a single that ‘inflation’ as measured by governments is not representative of the facts. Ask yourself why property and equities are not measured by inflation? The reason is because inflation is designed to avoid these measures; and yet these are the largest class of traded possessions. Inflation is not correctly measured. If you want a sense of whether inflation is evident, look at real global output (stalled) and currency creation (i.e. Japan has recently announced its intent to expand its monetary base by 50%).
4. Slack demand: There is news that physical demand is weak in Asia. This is a silly argument for several reasons. Asia is a source of jewellery demand, but ultimately it is speculative demand which will drive the market. News that the “new India government regulations to thwart gold speculation have worked to decrease consumer demand in that gold-hungry nation” is of no substantive relevance to gold prices.  If we were to worry about this source of supply, we should worry more about the dumping of gold by central banks.
5. Speculative demand: There is the argument that “legendary investor George Soros and the BlackRock fund have cut their holdings in gold exchange traded funds”. This is without question interesting in the short term, but in a month, I dare say he will be a net buyer again, because he’s a speculator and a trader. He enters positions, and he opens them. He is a substantial trader using the current liquidity and rumours about his positions to give momentum to his positions. One has to distinguish between short and long-term trading action.
6. Money printing: “Federal Reserve Bank of Philadelphia president Charles Plosser said in Italy Thursday that the central banks of the world cannot create wealth and said central banks do not have the tools to fix the present economic and financial problems in the major industrialized countries. He said the U.S. should wind down its quantitative easing program”.  That argument does not make sense because the only action left to governments is to stimulate the market. More important is the fact that the world faces a threat of war in North Korea and Iran, as both countries develop nuclear weapons.
Federal Reserve Bank of Dallas president Richard Fisher: “Major central banks of the world continuing to run their money-printing presses is at best a short-term bandaid which will eventually create major long-term problems. The inflationary implications of the extremely easy central bank monetary policies of the past few years is very likely to become at some point down the road a long-term bullish factor for gold and other raw commodity markets”. 
The implication is that gold and silver is a great store of wealth, and emerging gold producers who are 1-2 years away from production make particular sense. This is particularly the case for companies sitting on short term cash, since they will not be diluted by the current low gold price. This of course will change when the gold market turns, and the ‘cash poor’ emerging gold producers are better placed. This will also mean investors will get a 2nd bite at the market. So, at present, I like cashed-up emerging gold producers like Gryphon Minerals (GRY.ASX). The paradox is that investors in these strongly discounted gold stocks cannot go wrong, as long as they pick stocks which:
1. Have large gold resources - Gryphon has 4Moz - so they have the capacity to ramp up peoduction to fully benefit.
2. Have low-cost resources - Gryphon is in Africa, it has some high grade resources, near-surface, so they will not suffer unless gold falls below $800/oz. I can't see it falling below $1000/oz given the context of currency debasement.
3. Have low sovereign risk - Anywhere is fine as long as not on under a town, in Iran, Venezuela or Central Asia.
4. Have sufficient cash - so they won't be raising substantial amounts of money in the next 6-12 months

These companies are trading at less than 5% of their gold value 'extracted', that's after they have mined and processed it. Aside from those dilution risks above, where is the downside. Remember that there is a lot of money squashing around the market looking for a speculative position.

Quotes: “P.M. Kitco Metals Roundup: Gold Ends Lower, But Up from Daily Low; Bears In Control”, Kitco News, website, May 16, 2013.

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Sunday, May 12, 2013

Gold equities offer best exposure to gold

In recent weeks gold has tested support at $1400/oz. For many gold pundits who see gold as a source of security, they were surprised to see it break a support level of around $1520/oz. At the end of the day, we are in an inflationary environment. Governments are resorting to QE to stimulate the global economy suffering from high asset prices. The equity markets are looking 'peakish' given their profit results were achieved in an environment of QE, so there is downside to the Dow. Having said that, this is not a time of labour union power, so we are not going to see high inflation expectations. On the country, we are going to see a continuing erosion of Western 'unskilled' wages and continued real wage growth in developing countries. Given the lack of 'wage demands', there is every reason to expect govts to resort to more QE if there is any sign of slack. I would even expect them to manage any fall in equities which was destined to undermine confidence. This will be needed since 'system trading' tends to result in corrections. Downside in gold simply makes it better value. If its sold off, its sold off for its strength, and can be considered a buying opportunity.
With interest rates at record lows, there are few places to hold money and make a return. Need you worry about any investment? Well, equities are yield paying, unlike gold, but consider:
1. Emerging gold producers like Gryphon Minerals are strongly discounted because they are mere projects, but will be very lucrative in the wake of further QE. We still have some years of 'rot' before we are going to see 'real' upside in equities. This is a 'super-cycle' so don't think there is some crisis least not for around 20 years.
2. Gold equities are actually 'earners' unlike the commodity. Gold merely needs to make sense in the future, and since this low interest environment is set to persist for years, one is best off trusting in gold equities rather than gold.

One however cannot discount the fact that you can short-trade equities. But what of the QE impact on your money. QE could result in a Dow of 20,000 points in a few years, due to inflation. Its all a lottery, and the trick is to invest in what is most tangible. Discounted gold in the ground for 'non-traders' I would suggest offers the greatest flexibility.

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Sunday, March 03, 2013

Gold price near support at $1550/oz

Anyone watching the gold price of late? Well, its an important juncture in terms of its chart pattern. The 5-year Kitco chart for gold. It is apparent from our interpretation of a shorter term chart that $1550/oz is an important support for gold, and we are clearly close to that point. Gold might still have some consolidating to do in the physical market, but its worth taking a look at some gold producers and emerging producers in the equities market. 
Clearly there is a bit of upside in the gold price. But the greater opportunity for non-leveraged investors is likely to lie in the equities market - at least for gold stocks given that the broader (Dow/S&P500) is testing its previous highs - 14100 points for the Dow.
We have some thoughts on some good stocks at our Spec Mining Guide. 
You might however wonder whether you can trust that the gold price is going higher. We recognise that there are basically three compelling values which underpin gold prices:
1. Low interest rates - basically depositors are subsidising borrowers, so its better to buy any 'good investment' rather than hold cash
2. High asset prices - property prices around the world are fully priced; yields are with few exceptions not good (Asian tigers, Japan), equities are fully valued.
3. Relatively cheap - Gold prices are not fully valued. On this commodities blog we have posted graphs showing the historic relationship between gold and the Dow Jones. This graph sees gold going to $2500/oz in this cycle. Remember that in the last gold boom in the 1980s, gold went to $780/oz. That was 30-odd years ago. Compounding inflation over that period gives you a clue as to the under-pricing of gold. 

Sunday, September 30, 2012

Gold prices likely to consolidate

Gold prices are probably likely to retrace in the next week or two, given the price has returned to its previous high. The uptrend line is just an approximation, so you might want to look at a longer term chart for a trend-line support. But we can however expect some consolidation in the $1650-1780/oz range before gold advances. 

Wednesday, September 12, 2012

Gold rally taking us to new highs

Several months ago we alluded to the current gold recovery that we are seeing. We are looking for gold to challenge its historic high set back in August 2011 of around $1850. We believe that this 'flag structure' is about to see gold rise $600/oz above this previous high, so we are looking for an ultimate price for gold of $2450/oz in the coming year or two.
A lot of rationalisations will be made to justify this price movement, as well as rationalisations to reject it. The most common arguments are:
1. Low mine output - annual mine production is just a small fraction of the amount of gold in existence. Ultimately it is only speculative demand which drives gold prices, relative to supply of course.
2. War in Iran - Really it is only the uncertainty over monetary unit values which drives the demand for gold.    The prospect of war in Iran is only significant if financing war is considered to be a significant cost on society.
3. Interest rates - The low return on bonds and equities is a compelling reason to hold gold; and this is the state of the current market.

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Thursday, July 12, 2012

Outlook for gold prices

The price of gold is currently consolidating around above $1550/oz. I fully expect that the price will move higher, though I see no hurry in this regard given the current crisis in confidence. The ultimate strength of gold will be the twin issues of:
1. Greater economic confidence
2. Lower interest rates - low bond yields
3. Few other places to place your money - aside from Asian/Latin American property yields

From this chart, you can see scope for a short run rally to $1650/oz, but we will eventually see a rally in around 1-2 years to $2400/oz. Watch for that break-out!

Source: Kitco

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Tuesday, March 06, 2012

Don't read too much into Chinese GDP figures

Australian markets are down today. Not surprising - the commodity markets are down. The question is - should they be down? Well, the purported reason for them falling is the 'concrete' reason that China has just reported that it is forecasting annual GDP growth of 7.5% in 2012 rather than 8%. One has to be suspicious of this number however for a simple reason - the Chinese government is:
1. Highly centralised
2. Even autocratic leaders need to depend on market info

The question is - what is deciding the reported forecast of Chinese economic activity. There are several possibilities:
1. The government bureaucratic analysts are looking at market trends - clearly this is not likely because they have a habit of always understating growth
2. The government bureaucrats are performing a market survey to assess market demand for commodities, demand for their products, and these forecasts are relatively negative, i.e. This could be because Chinese manufacturers and traders have a tragic, cautious nature....but alas the economy is growing fairly strongly. The other reason is that Chinese traders are advising the government that demand is weak because they want to drive market perceptions down, so they can buy commodities at lower prices.
3. Chinese commodity buyers, traders or manufacturers, are paying kickbacks to analysts to talk down prices and economic activity in China, so that international commodity prices fall, so that they can buy commodities lower. They can later in the year adjust their prices.

I favour this last approach because a lot of commodity prices are set on the basis of annual price negotiations; and they tend to occur in March or April, i.e. so these Chinese GDP figures are rather timely for the traders. I have over the years seen a great deal of corruption in Asian markets. Rest assured the economists studying PhDs in Canberra take Chinese bureaucratic numbers as gospel - but that is because there is no implication for their papers. i.e. Their salary is extorted from you the taxpayer, where you have no discretion. The trader has discretion, however they are responding to the 'news'; so I suggest they will be buying in coming weeks. I see copper prices are testing previous highs; and lead can go higher.

Sunday, February 05, 2012

Focus on copper and nickel

Keep an eye on commodities in these times - particularly copper and nickel, as they are always the first to respond to signs of life. You can watch these commodities at:

Please note our review of the economic outlook in 'Market Commentary'.

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Wednesday, January 11, 2012

Short term upside to gold

You'd have to be a little more positive about gold at these times; principally for 2 reasons:
1. Prospects for ongoing low interest rates
2. Prospects of tensions in Iran, the Straits of Hormuz - as Iran borders the channel through which oil exports flow. This issue is of course escalating because Iran is building a nuclear weapon.

The reality however for gold is that its going to be a short battle, with the US eventually destroying key military capacity, the nuclear facilities, as well as retaining air and sea superiority.

Wednesday, December 28, 2011

Dubious outlook for metals

The current gold market suggests we might be looking at a change in fortunes for the gold market. This next week will be telling; but we might be looking at an overall weak metals market. This would spell a more compelling argument in favour of agricultural commodities in the short term. The problem of course for gold - despite the debasement of global currencies - is the very strong underlying fundamentals of global market liberalisation that have continued unabated since the 1990s, if not before. Earnings in Western countries have remained flat, which means the productivity gains have accrued to businesses to be sure, but also to 'cheap labour' in the third world, whilst more Westerners live off benefits.
We can probably expect a weaker commodity outlook for the next year, but we might see some selective recovery before long, i.e. copper. This of course will not be the end of the commodities story. We are still looking at a commodities 'super-cycle', but things will be off in the short-run, at least in metals. I tend to think agricultural commodities will hold up better, but this is not my market of interest generally.

Thursday, December 01, 2011

The gold price set to rally in coming months

I am expecting a rally in gold prices in the coming months as the central banks deal with their financial crisis. The gold price has been consolidating around $US1700/oz, and this is a support level. I am ultimately expecting the gold price to reach a level of around $2400/oz.
Check out our gold equity blogs for the best entry into Australian and Canadian stocks. Not all gold stocks are over-priced. There is some good value among the emerging stocks; though one needs to look for those stocks which are sufficiently large or supported by private equity to raise fnance in these troubled times. I've seen a number of stocks simply collapse because of difficulties raising capital. One which we like is Base Metals Ltd (BSL.ASX). I would not be surprised to see this company go into voluntary liquidation in coming months if it cannot attract the support of a Asian investor/metal trading house/base metal consumer. The company appears to be under-capitalised; not a desirable quality in the current market with the strong $A.

Monday, September 26, 2011

Gold prices find support

Gold fell to $1540/oz overnight before recovering to $1615/oz at the end of trading. As is typical with commodities, the spot price temporarily breached its support level of $1580/oz. We can expect to see the gold price consolidate at these levels before rising to new highs. Unsurprisingly, the Dow Jones Index is up 226 points today, after reaching an important support level 2 days ago of 10,600pts. The market can be expected to remain volatile in the short term.
Importantly, whilst there has been a 20% correction in the gold price, the weakness in the AUD has resulted in the gold price in AUD terms falling to just $1650/oz. These are still very good gold prices upon which producers can sell output. Its not over yet.

Thursday, August 25, 2011

EU demands gold reserves as security for Greek debt

This announcement that Greece and other countries in the EU are being asked to support future loans with their gold reserves has to be seen as good news for the gold price outlook. It provides some legitimacy for gold, after long considered of no value.

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Friday, February 25, 2011

Rare earth elements (REEs) - demand side remedies

The Japanese government is planning to spend Y166 billion on 160 projects to reduce the companies reliance on Chinese rare earths, as well as to advance certain global projects which in the long run would reduce its reliance upon China as a supplier of rare earths.
The biggest beneficiary of China's curtailment of rare earth exports is Lynas Corporation, the ASX-listed company. If I was a Chinese regulator, I would be investigating the share register of Lynas Corporation to see if there are any Chinese shareholders engaging in insider trading, as its so easy to profit by trading in a third-party jurisdiction from actions taken in another. This is why regulation is mere rhetoric. The auhorities are so far behind the times. I laugh when the authorities were monitoring share trading of executives on the main exchanges, whilst people were no doubt trading in 'derivative exchanges', i.e. Contracts for difference. One does not even have to trade the exact same security, just a security which is related to it. i.e. Rare earths is to Lynas what the 3mths platinum contract is to the spot platinum price. Just find a causal correlation and you can profit.

Tuesday, February 08, 2011

Gold prices set for another rally - Feb 2011

The start of a mighty rally is about to unfold. The following charts show on a short term scale that gold has broken a recent short term high to achieve a new high, and that it has in fact changed trend. The 2nd chart shows the long term trend, with the prospects for a rally up to around $1,800/oz expected over the next 12 months.
We will be looking for gold to rally to the previous highs around $1425/oz.
Visit our speculator's blog for the best entries into exploration stocks, since this end of the market is the most undervalued, and stands the best chance of benefiting from resource upside, takeover activity, revaluation of resources, increases in gold prices, including the opportunity to lock in high priced gold hedges.

Author Andrew Sheldon

Commodities taking a lead - gold and copper

I am about to go out hiking, however I note that gold is breaking out into a new uptrend. We have also seen copper prices reach new highs of $4.63/lb. These are what we might regard as the post-Xmas commodity-equity market rush of blood that we like so much. Charts to come later. Its a beautiful day!

Friday, January 28, 2011

Gold prices set for another rally

Gold prices have bottomed on Friday, and we have seen a rally of $21/oz in Friday (night) trading in the Comex market. The implication is that gold has found support on its long term uptrend, confirming what we always knew was going to happen; that gold was going to rise to new highs. Our interim target is $2,400, however in the medium term we can probably expect a move to $1800/oz.
There are a number of factors giving strength to gold. The prospect of failing monetary policy demanding any effort by the US and other countries to stimulate demand. There is the prospect of escalating tensions in the Middle East. Oil and gold prices alike are likely to be very strong in the next year.

Saturday, January 08, 2011

Outlook for uranium on the slide

I have not been a big supporter of uranium stocks and the recent news that China has developed a process for reprocessing uranium could only add to the downside. There is good reason for thinking that China will explore this process route to reprocess nuclear waste for power generation, however at the end of the day, there is no shortage of uranium resources. I think Australia alone has enough to last the world 7,000 years, and that is kind of by tripping over the stuff accidentally looking for more 'PC-friendly' minerals.
The problem for uranium is not the fuel cost it is the capital (plant) cost. The benefit is that reprocessing will at least mean reduced waste disposal issues, and probably total desensitisation of that issue, though of course waste and reprocessed fuel still has to be transported to and from a centralised facility.
Uranium prices are still high I think but that is just because of the high cost of alternative energy resources. If more nuclear plants are built, other fuels will fall. The problem is - too many people are opposed to nuclear. One of course has to worry about the management record of Chinese plants; particularly as the management of Japanese plants has often been shaky. There have been a few scares in Japan, but the new designs in China ought to be 'fail-safe' in design; assuming they are properly constructed 'to design'. That is the worry.
The Japanese will be very nervous since they are down-wind. The prospect of China importing a lot of fuel has to be good for Australia in particular, and probably some Russian and Canadian projects. Picking the winners to benefit from Chinese support - good luck with that! I'll still with gold, copper, as its easier to sell.

Andrew Sheldon

Wednesday, January 05, 2011

Gold still has some downside before resuming uptrend

I would not be surprised to see the gold price fall back to $1255-1300/oz level in the short term, however that ought to be the basis for a very solid run. I don't even expect gold stocks to flinch if that happens, as we approach the reporting season. There are several issues which might hold gold though.
We can expect a post-Xmas rally in gold, though in the short term, there is the prospect of a greater correction. Don't for a moment expect that long term uptrend to break.
Andrew Sheldon

Wednesday, September 08, 2010

Is the gold price a bubble?

Some of you might be worried about the gold price being a bubble, so I would like to place your minds at easy. There are a number of reasons why the gold price is not a bubble:
1. Gold is appealing when there is no returns on other asset classes. In fact gold is appealing if only bonds are low-yielding because only a little bit of that money need to 'slosh around' into gold equities and derivatives.
2. Derivatives are less alluring when financial markets are panicky, so fund managers prefer ETFs, physical gold, mining stocks with long life production capacity, to avoid financial risk exposure.
3. Risk of further currency debasement - the equity markets are going to fall at some point because of low returns will eventually see stocks sold off...US unemployment is around 10%.
4. Risk of slower global growth
5. Gold has very small industrial demand, and very large investment holdings. During times like these 'speculative demand' can greatly add to the price
6. Gold after adjusting for inflation since 1980 ($760/oz) is not very high. Thirty years of inflation means gold is cheap. We looked some time ago at the historic dow jones/gold ratio and concluded that gold can go to $2400/oz without much trouble. The more debasement of the USA, the higher the Dow will go, so rest assured $2400/oz is based on a 10,000 pt Dow. It might be 20,000 in 5 years time. Anyway, you don't need to speculate about that. This ratio has worked well for 113 years.

I personally like emerging gold producers. Africa has particular appeal because of the cheap cost of developing resources and the excellent exposure provided in Australia, Canada and the United States, as well as the London-based AIM (Alternative Investment Market). These markets also provide exposure to gold in Mongolia/China, Russia, Latin America and Indonesia/PNG.

I tend to forget the appeal of silver because there are few stocks in Australia chasing silver. The reason is that they mostly focus on Africa, Asia, whereas most silver mines are in Latin America and the USA.
Andrew Sheldon

Gold set to breach previous high of $1260/oz

Gold has reached a new all-time high of $1260/oz, matching the previous high set 3.5 months earlier. In the coming week, we will see whether it continues on to extend the high, or falls back for some profit taking. I suspect the rally will continue with the current trend.
Our gold stocks continue to do very well.
Andrew Sheldon

Sunday, August 22, 2010

Gold rally upside to $1260/oz

The gold price has short term upside to $1260-1265, before it is likely to be sold off by investors.
The next sell-off is likely to see $40/oz come off gold I suspect, with it likely to consolidate around $1220-1225/oz, before it breaks out to new highs of $1350-1500/oz.
I suspect gold might be given renewed momentum with developments in Iran over the enrichment of uranium. Iran recently commissioned its first nuclear powered reactor, which is intended to help the country produce power. The country however makes no secret of the fact that it wants to enrich uranium. It argues that this is intended only to produce isotopes for medical purposes.
There is of course a big difference between 3%U3O8 and 98% weapons grade uranium. They will not be allowed to get that far. I suspect the country will face a change of government before that happens. The other compelling reason for gold reaching new highs is the debt liquidation in the United States, Japan and the EU. These countries can be expected to debase their currencies, and it will be the hard 'commodity' currencies which will attract most of the support. Don't be surprised however if this predicament results in the commodity producing countries hobbling their currency in order to retain a competitive exchange rate. There are several ways they can do this:
1. Retaining low interest rates (reduce the currency)
2. Stimulating the domestic spending (i.e. stronger import growth) by engaging in debt-spending
Andrew Sheldon

Wednesday, July 21, 2010

Gold price likely to find support

The gold price appears to be consolidating at a support level. This provides a strong entry point. The end of the tax season is also a pertinent consideration, as sales to realise tax losses tend to push markets down in June.
Andrew Sheldon

Wednesday, June 23, 2010

Gold looking for a new rally

Gold prices appear to have found a new support. Its not the strongest support, but its probably the best one you are going to get, so I'm taking it. Its also an opportune time to buy A1 Minerals at an opportune time since it broke support at 24c the other day. Sellers have also disappeared.
Andrew Sheldon

Thursday, June 17, 2010

Gold destined to rally to $1300-1350/oz level

The gold price has reached technical resistance again, which augers well for the achievement of a new high. The lead usually somes from the NY-London trading session, so we might expect this to happen in overnight trading for Australians.
Based on the established trend, we might expect the gold price in this rally to reach the $1300-1350/oz level, though that will ultimately depend on the price action. In the short term, there is the prospect of the price falling back to $1225-1230, however given the small downside, its safe to say that gold will be breaking out tonight. This makes gold and silver, or related stocks good buying at current levels. I don't advise buying physical gold. For upside its either call options, CFDs or spec miners/project developers. With the prospect of Kevin Rudd backing down on the miners tax, it might be good to anticipate that move. This makes companies like A1 Minerals, Integra Mining, CRE.ASX more attractive.
Andrew Sheldon

Wednesday, June 09, 2010

Gold poised for further gains after consolidation

Gold is poised to break the $1250/oz mark, though it might not come for a few weeks yet. Clearly the growing concerns about the quality of sovereign (government) debt are going to worry fund managers in coming months. In any respect, the strength in the gold price is assured because who would count on central bankers raising interest rates to an extent which would curtail demand or liquidate credit. It will not happen. Instead we are looking at a Japanese-style recession....years of stagnant economic activity. Not as bad mind you. Japan was a more tragic case.
Interestingly, if you are interested in Japan, I hold great hope in the new PM of changing Japan. The most critical issue is whether the new PM will get a majority in both houses in July 2010. The upper house elections will be closely watched. See here for details. Global financial markets could do with some good news...though it will take years for fiscal reforms to make a difference, and for the new PM to prove himself.
Andrew Sheldon

Monday, May 24, 2010

Gold short term direction will be decided tonight

Gold has probably been giving a few people a scare in the last few days. The short term action has been negative, however the reality is that matters could not be more supportive for gold. This Tuesday night will be critically important I think in deciding the outlook for gold. I am expecting a pull back above $1200/oz, regardless of whether the Euro flounders. Actually, I think it will recover because there is no more bad news to come. Useless governments are always good for gold in the long run.
I expect the gold price to resume short term trend, but let the market decide.
Andrew Sheldon
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