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Global events currently support gold and Australian gold stocks.
Yet gold and the ASX-XGD index have been in a consolidation and correction
mode of late. The Australian gold sector has underperformed gold itself
over the past two weeks, within a long-term uptrend, offering some sweet
pickings which we did not waste. Investors swooped on these exceptional
investment opportunities late last week as the Australian gold sector surged
up from oversold lows. Here are the supports (from 5 year – 1
week tick chart) I provided in Newsletter 27 released 16th March:
 
“We are currently at important support from both the
horizontal line A which is old resistance – possibly new support, and
also rising trend support line B. RSI is also at key support as we have
not been lower since that dramatic swan dive during the GFC in 2008.”
Since I posted this for subscribers we have rallied 476 points in two days
nearly touching 7,500 today (Monday 21st).
I am also very pleased to report that the GoldOz educational
portfolio now has 13 different companies on the register and managed a 6%
gain in the first 2 months, using less than 25% of the capital. This
was not a bad result in a falling market. As I have said before there
are always opportunities in all markets. This fund has now moved to
over 40% of capital invested waiting for further confirmation of a renewed
uptrend in these gold stocks driven by a renewed uptrend in physical gold.
I believe that fall was probably the final wash out before the
uptrend resumes. To support this theory I also offer some charts on
sub-sectors of these gold stocks. The first chart below is a five year
chart of the larger gold producers on the ASX, without the distortion caused
by Newcrest Mining on the ASX-XGD (which is weighted). Therefore this
chart below offers a broader representation of the stocks and their progress
or lack of it. Remember that the Australian gold price averaged well
under A$900 per ounce back in 2006 to 2008.
This chart clearly illustrates that the Australian gold sector
is still cheaper than the pre-GFC crash levels and yet gold is around 50%
higher (now A$1400 compared to A$900). I marked an ellipse around a
series of dips that ran below the 200dma since the GFC. This recent
pullback was exaggerated by the situation in Japan and the “risk
off” selling that followed. I also added a support trend line
that held firm on this pullback.
You can see a similar picture for the emerging gold producers
and a similar uptrend line also held. Again I suggest these stocks are
significantly undervalued compared to gold and their previous levels back in
the pre-GFC period. All credit to these companies which have been
making strong progress into a rising gold price. The share prices do
not yet reflect the progress made and this offers investment upside.
The rising 200dma on both charts illustrates the superb uptrend in both
sub-sectors.
Apparently the big money agreed with me on the 16th as we have
rallied around 7% in the last two days trading, as of the close today.
Now to the events that I believe will drive gold again in the
short-term. The Sunnis and Shiites in the Middle East will have mixed
feelings over the military intervention in Libya. The other trouble in
the region is also well documented so no need to go over it again. The
Middle East has just become even more volatile and I sincerely hope it does
not blow up. In any case this has lit a fuse under gold and may cause a
new breakout to the upside for gold in all currencies very shortly.
I am getting conflicting views on the global debt markets and
there is a lot of spin about, even more than normal. The rebuilding in
Japan will stimulate a massive amount of spending which is great for the
economy in the medium to longer term. In the meantime they need to
clean up and go through process before spending this money. In the
short term the effect is negative make no mistake and this is why the Central
Banks are intervening to cap the Yen.
The initial rise in the Yen was caused by a partial close in the
Yen carry trade as some funds exited non-Japanese assets in order to cover
loans previously taken out in Yen. This is why the AUD came off
dramatically to name just one effect. We love to see the AUD come off
here in Australia as it pushes the AUD gold price up increasing profits for
the local producers. This initial unwind will be repeated in waves
creating the need for continued intervention. The question is always
– how effective is Fx intervention in these cases? Only time will
tell but we suspect the CB’s will have an uphill battle for the next
few months at least. Speculation would have also added to the Round 1
Yen strength.
Japan Inc includes the Sovereign Fund which holds the foreign
reserves. These reserves are sitting in other currencies and bonds not
cash in Yen. These holdings are not fully hedged as is being claimed in
the markets and media today - this is absolute spin. The days of
“spin your way out of trouble and it will all solved” are over because
the troubles are just too deep. The Greenspan days were classic for
this but now jawboning is gradually becoming less and less effective.
The Japanese would not buy risky high yield assets and then fully hedge then
what would be the point?
The best result possible for global debt markets would be that
the Japanese just stopped buying new bond issues, but continued to roll over
their foreign bond holdings on maturity. This is highly unlikely but it
would still place a serious new pressure on global debt markets.
Remember recently when debt markets celebrated that Japan was supporting
PIIGS bond issues? This would all stop under this scenario. Now
consider that the rebuild has just been revised up to US$500B and you soon
see there will have to be some sales of foreign denominated reserve
assets. This all puts pressure on the Yen – upwards.
There will be increased currency volatility over this coming
period and this is great for gold. The Central banks are trying to cap
the Yen suggesting that the Yen will be going up in waves and the AUD will be
under pressure. This is great for Australian gold stocks. The world is not
looking too keen on USD here and this also puts pressure on the Euro –
going up. This adds great pressure to the PIIGS as they need a depreciating
asset, a weak Euro. So do Germany and France as this assists them with
exports and drives their economies.
Japanese retail investors were heavy buyers of Kangaroo bonds
and many of these investors will want to bring home their money over coming
weeks and months. This is also bad for the AUD and puts pressure on the
Australian banks. Add the Japanese fund, insurance and company
repatriation activity due to need and the risk of the carry trade
unwinding and you have a significant capital flow. We also suspect added
pressure will be on the bond sales in the US and Europe in the short to
medium-term. Chances are the Japanese will want to sell some risky Euro
debt to avoid potential losses – this is not a pretty picture.
The selloff on gold last week reversed quickly as expected here
at GoldOz. This is another reason why we waded in and increased
holdings of Australian gold stocks in our educational portfolio. Gold bounced
off the 20 week moving average confirming current strength. I have been
excited by the gold stock behaviour for some time because the juniors are
performing alongside the larger stocks. This is gearing up for a
tremendous rally based on my observation of gold stock behaviour during the
last ten years. We are offering further education and market coverage
in a client only Newsletter which is part of our Gold Members service.
This service is currently on special, selling at a discount if you want to
take advantage of this opportunity or just have interest to increase your
knowledge on the Australian gold sector- we would be happy to have you
aboard.
Good
trading / investing.
Neil Charnock
Editor,
Goldoz.com.au
REGISTERED
ADVISOR – WHO THE ADVICE COMES FROM IN THE GOLDOZ NEWSLETTER:
Colin
Emery is currently a Branch Manger and Senior Client Adviser of a Stock
Broking Company in Queensland Australia. Prior to his work in Share broking
he spent nearly 20 years in Senior Management and Trading positions in
Treasuries for major International Banks such as Bank Of America, Banque
Indosuez, Barclays Bank, Bank Of Tokyo and Deutsche Bank AG. He spent a
number of years as a Senior trader in New York, London, Singapore, Tokyo and
Hong Kong with these institutions. He also was Global Head of emerging
energy, emission and commodity products for the leading Energy and
Commodities brokerage firm of Prebon Yamane Ltd – Prebon Energy for
four years before moving to Cairns in 2003 to focus on the Stock market and
Private consulting work. The private consulting and advisory work currently
undertaken is with companies involved in Resources, Energy and Renewable
Energy and Forestry.
Neil
Charnock is not a registered investment advisor. He is a private investor
who, in addition to his essay publication offerings, has now assembled a
highly experienced panel to assist in the presentation of various research
information services. The opinions and statements made in the above
publication are the result of extensive research and are believed to be
accurate and from reliable sources. The contents are my current opinion only,
further more conditions may cause my opinions to change without notice. The
insights herein published are made solely for international and educational
purposes. The contents in this publication are not to be construed as
solicitation or recommendation to be used for formulation of investment
decisions in any type of market whatsoever. WARNING share market investment
or speculation is a high risk activity. Investors enter such activity at
their own risk and must conduct their own due diligence to research and
verify all aspects of any investment decision, if necessary seeking competent
professional assistance.
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