The time has finally arrived to step up to the plate and buy some beaten up gold stocks. I’ve been waiting for what seems like an eternity for the long term charts on gold to turn more bullish after a gut wrenching fall over the past year.
I’m going to stick my neck out and say that moment has arrived.
The first thing I needed to see was for the weekly MACD to cross above its signal line. You can see from the chart below that the last two times we saw the weekly MACD cross its signal line from below zero the gold price took off to the upside over the next few months.
The first time was actually the beginning of a huge leg up in gold after the crash in 2008.
I also wanted to see a weekly close in the gold price above the 10-week moving average. I currently have the 10-week moving average sitting at US$1319 and yesterday’s rally in the gold price took it to US$1330 and above.
If prices can hold above the 10-week MA this week then it will increase my conviction levels that gold has seen an intermediate bottom.
Gold stocks saw good buying across the board yesterday. Silver Lake Resources (SLR), Troy Resources (TRY), Perseus Mining (PRU), Medusa Mining (MML), Kingsgate Consolidated (KCN), Gryphon Minerals (GRY), Resolute Mining (RSG), Newcrest Mining (NCM), Ramelius Resources (RMS), Saint Barbara Mines (SBM) and Oceana Gold (OGC) were all up by more than 7% yesterday.
The Aussie Gold Miners Index (XGD) is looking particularly interesting on the weekly chart. The thick blue line in the chart below is the low in the XGD after the crash in 2008. The false break of that low could prove to be a great buying opportunity in gold stocks for the long term. At the very least we should see a bit of a bounce in gold stocks in the short to medium term if we get the weekly close above that level.
Another thing that has me interested is the fact that Newcrest Mining (NCM) announced a horrible annual result yesterday with a loss of $5.78 billion but spiked higher by 8% over the day. In other words, investors have now taken into account the bad news and they’re now looking forward to the future rather than fretting about the past.
There has been a lot of press lately about the fact that the GOFO (gold forward offered rate) has gone negative. The Gold Forward Offered Rate (GOFO) is the rate used for gold/U.S. dollar swap transactions.
That is, if you own gold and you need to borrow dollars, you can use your gold as collateral and pay a much smaller rate of interest to borrow the cash than otherwise. This is a common transaction in London. The LBMA (London Bullion Marketing Association) publishes the GOFO daily.
A 10 July article on Seeking Alpha said that:
‘The only reason a negative GOFO would occur is if someone desperately needs to get their hands on gold but thinks they’ll be able to return it within the time frame of the loan. A negative rate out to three months tells us that there’s a big delivery shortage and bullion banks or large investment funds are willing to pay an interest rate to borrow gold and put up dollars as collateral.‘
The Time to Look at Gold is Now
If some big investors are finding it hard to get their hands on physical gold then we shouldn’t be surprised to see the gold price starting to catch a bid. A negative GOFO rate is a bit of a canary in the coal mine that something big could be happening behind the scenes that we aren’t privy to.
You’ve probably heard the conspiracy theory that traders took down gold over the past year to shake as many weak hands out of physical gold as possible. It has also been pretty clear that demand for physical gold has actually been skyrocketing the lower prices have fallen. Not really what you would be expecting to see at the end of a bull market.
Gold stocks have had one of the biggest I have seen in many years. The Aussie Gold Mining index fell from 8,500 to 2,000 in a little over two years. That’s a fall of 76% in the whole index in 26 months! Quite extraordinary.
With margins dropping to zero for most gold stocks we’re either heading to a situation where gold mines will begin to get mothballed or gold prices will have to rise to a level where production can continue to fulfil demand. In either situation we should be getting close to a low in gold prices, because if a lot of production goes offline then prices should naturally rise.
Any gold stock that’s producing in the bottom quartile and priced on the current razor thin margins has got to be looking pretty cheap right here.
It’s pretty clear from yesterday’s price rises that other investors are starting to think the same thing. The opportunity is still there but it won’t last forever.
Bought GLD in April (a small spec position) at 125.02.
Then in July when Shadow said it was time for gold bugs to panic and most of the other property bulls all jumped on the band wagon I took it as a good contrarian indicator and bought NCM @ 9.68 (a slightly larger but still small spec position).
Then 2 weeks ago I decided to sell GLD (approx. 11% profit) and put the funds into PRU (bought at 0.555).
The lower AUD has helped, but I do think there is a very real chance you are right Kris. I'm willing to take the risk of maybe a 25% downside to get some exposure to serious upside potential. If the gold price were to shoot back up to record levels we'd be looking at around 500% appreciation on these shares over the next couple of years. Not a bad risk/reward ratio.
It's still just bouncing along before the next big leg down...
You might be right - I'd say 40% chance that gold has significantly further to fall from its recent trough, 60% that it will be significantly higher (especially in AUD) than its recent trough in 24 months. The great thing is though from my position the upside potential is so much bigger than the downside. As always time will tell. Interestingly during the early stages of the GFC gold did get smashed but then rose strongly well before shares and property started to turn.
Interestingly during the early stages of the GFC gold did get smashed but then rose strongly well before shares and property started to turn.
much of the gain was driven by fear from memory, then speculation
im not sure how i feel about gold at the moment.. to me the charts are telling a story of it getting its arse kicked again but nothing would surprise me.
It's still just bouncing along before the next big leg down...
You might be right - I'd say 40% chance that gold has significantly further to fall from its recent trough, 60% that it will be significantly higher (especially in AUD) than its recent trough in 24 months. The great thing is though from my position the upside potential is so much bigger than the downside. As always time will tell. Interestingly during the early stages of the GFC gold did get smashed but then rose strongly well before shares and property started to turn.
Soros and Paulson are getting out of gold because they don't know as much as Money Morning Australia?
It's a bit of a stretch isn't it. The falling currency might save them, but wouldn't buying $USD be a safer play?
Kris this is what Terry Ryder had to say this morning:
Quote:
So where are the hotspots in Melbourne?
Ryder suggests more affordable locations further out from the city with growing populations, good transport connections to the city and with good employment opportunities.
His recommendations include Frankston, an affordable Bayside suburb with a median house price of around $330,000 and units at $260,000. The suburb has rail links to the CBD as well a good motor link connections following the opening of the Peninsula Link. Property prices are rising by around 7% per annum.
fair warning
APF - a place where serious people don't take themselves too seriously. There's nothing else like it.
Bought GLD in April (a small spec position) at 125.02.
Then in July when Shadow said it was time for gold bugs to panic and most of the other property bulls all jumped on the band wagon I took it as a good contrarian indicator and bought NCM @ 9.68 (a slightly larger but still small spec position).
Then 2 weeks ago I decided to sell GLD (approx. 11% profit) and put the funds into PRU (bought at 0.555).
The lower AUD has helped, but I do think there is a very real chance you are right Kris. I'm willing to take the risk of maybe a 25% downside to get some exposure to serious upside potential. If the gold price were to shoot back up to record levels we'd be looking at around 500% appreciation on these shares over the next couple of years. Not a bad risk/reward ratio.
all the bulls have been saying gold is in for pain for about 12 months. gold has been dropping for more than 2 years now.
i refuse to give sayce any credit, his only advise is to buy gold, so he is not calling anything.
I am the love child of Tony Abbott and Pauline Hanson
Australian Property Forum is an economics and finance forum dedicated to discussion of Australian and global real estate markets and macroeconomics, including house prices, housing affordability, and the likelihood of a property crash. Is there an Australian housing bubble? Will house prices crash, boom or stagnate? Is the Australian property market a pyramid scheme or Ponzi scheme? Can house prices really rise forever? These are the questions we address on Australian Property Forum, the premier real estate site for property bears, bulls, investors, and speculators. Members may also discuss matters related to finance, modern monetary theory (MMT), debt deflation, cryptocurrencies like Bitcoin Ethereum and Ripple, property investing, landlords, tenants, debt consolidation, reverse home equity loans, the housing shortage, negative gearing, capital gains tax, land tax and macro prudential regulation.
Forum Rules:
The main forum may be used to discuss property, politics, economics and finance, precious metals, crypto currency, debt management, generational divides, climate change, sustainability, alternative energy, environmental topics, human rights or social justice issues, and other topics on a case by case basis. Topics unsuitable for the main forum may be discussed in the lounge. You agree you won't use this forum to post material that is illegal, private, defamatory, pornographic, excessively abusive or profane, threatening, or invasive of another forum member's privacy. Don't post NSFW content. Racist or ethnic slurs and homophobic comments aren't tolerated. Accusing forum members of serious crimes is not permitted. Accusations, attacks, abuse or threats, litigious or otherwise, directed against the forum or forum administrators aren't tolerated and will result in immediate suspension of your account for a number of days depending on the severity of the attack. No spamming or advertising in the main forum. Spamming includes repeating the same message over and over again within a short period of time. Don't post ALL CAPS thread titles. The Advertising and Promotion Subforum may be used to promote your Australian property related business or service. Active members of the forum who contribute regularly to main forum discussions may also include a link to their product or service in their signature block. Members are limited to one actively posting account each. A secondary account may be used solely for the purpose of maintaining a blog as long as that account no longer posts in threads. Any member who believes another member has violated these rules may report the offending post using the report button.
Australian Property Forum complies with ASIC Regulatory Guide 162 regarding Internet Discussion Sites. Australian Property Forum is not a provider of financial advice. Australian Property Forum does not in any way endorse the views and opinions of its members, nor does it vouch for for the accuracy or authenticity of their posts. It is not permitted for any Australian Property Forum member to post in the role of a licensed financial advisor or to post as the representative of a financial advisor. It is not permitted for Australian Property Forum members to ask for or offer specific buy, sell or hold recommendations on particular stocks, as a response to a request of this nature may be considered the provision of financial advice.
Views expressed on this forum are not representative of the forum owners. The forum owners are not liable or responsible for comments posted. Information posted does not constitute financial or legal advice. The forum owners accept no liability for information posted, nor for consequences of actions taken on the basis of that information. By visiting or using this forum, members and guests agree to be bound by the Zetaboards Terms of Use.
This site may contain copyright material (i.e. attributed snippets from online news reports), the use of which has not always been specifically authorized by the copyright owner. Such content is posted to advance understanding of environmental, political, human rights, economic, democratic, scientific, and social justice issues. This constitutes 'fair use' of such copyright material as provided for in section 107 of US Copyright Law. In accordance with Title 17 U.S.C. Section 107, the material on this site is distributed for research and educational purposes only. If you wish to use this material for purposes that go beyond 'fair use', you must obtain permission from the copyright owner. Such material is credited to the true owner or licensee. We will remove from the forum any such material upon the request of the owners of the copyright of said material, as we claim no credit for such material.
Privacy Policy: Australian Property Forum uses third party advertising companies to serve ads when you visit our site. These third party advertising companies may collect and use information about your visits to Australian Property Forum as well as other web sites in order to provide advertisements about goods and services of interest to you. If you would like more information about this practice and to know your choices about not having this information used by these companies, click here: Google Advertising Privacy FAQ
Australian Property Forum is hosted by Zetaboards. Please refer also to the Zetaboards Privacy Policy
