Preferred stocks
Premier Golds ASX.NST, ASX.EVN, ASX.TBR, ASX.RND, ASX.SAR, ASX.DCN, ASX.WGX, ASX.RRL, ASX.SBM, ASX.RSG, ASX.GOR.
Secondary Golds ASX.BLK, ASX.KIN, ASX.PNR, ASX.AUC, ASX.EGA, ASX.TNR.
Other resources ASX.MLX, ASX.MUS, ASX.FND, ASX.AMN, ASX.SFX, ASX.HRR.
Australian mining Industry, please take another bow! What a performance there at Kalgoorlie this year.
For the Gold Sector, another year of production and resource growth and some outstanding brownfields `discoveries' in WA's goldfields.
And a year of some big operating cashflows rolling through that is boosting exploration, operating capex and paying some big cash dividends.
Other sectors like iron ore and copper are also doing well.
Diggers and Dealers is skilfully timed to catch the end of the Northern Hemisphere summer and the seasonal run in the gold price and the ASX Gold Index.
Ridiculous as it may sound, the world gold price usually manages to kick up on the Friday before Diggers to get the faithful aroused but gold decided to wait until the middle of the Gala Dinner after the conference closed on Wednesday to put on US$15 and set the XGD firing. More gains (almost US$30) to test US$1300 came over the next couple of days.
As an unabashed bull of most things and almost everything gold Dawes Points considers the timing is pretty much on schedule. Gold has shown clear seasonal strength after the Northern Hemisphere Summer and into the following February.
Source: Seasonax
And gold is just about ready to move much higher. It may take a couple of weeks to back and fill and to whipsaw aggressive traders but a move through US$1,300 with appropriate retesting and consolidating should send it much higher later in 2017.
If Nth Korea is the issue, the buying pressure could get quite serious although the issue will probably be more bluster than bother. Recall that the Sth Korean KOSPI Index has risen 20% in 2017 and seems to have been anticipating re unification and an end to that abominable repressive regime in the north.
But do not lose track of the bigger picture.
Rising living standards in Asia are driving demand for gold and the gold price. Gold has moved from the West to Asia and a short squeeze is likely to develop.
Should gold break upward here to above US$1300 and begin moving higher then
the 2011-2017 downtrend will have been broken!
Note that the move from US$246 to US$1,032 over 8 years was US$786 and to US$1,923 over 11 years was US$1,677.
These are just numbers but it always astounding how they will recur.
We have two important points to consider here from my perspective.
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- If the US$1,032 is the intermediate high then there is US$600-700 to come quite quickly to take us to US$1,900-2,000.
The run to from US$1,032 to US$1,923 with that US$891 gain is cream on the cake and could come again later as the next leg to almost US$3,000.
This move would really show me the power of this bull market that is brewing in gold.
- However, if the US$1,923 is the intermediate high then, perversely, gold might `only' get to US$1,923 then have considerable consolidation over a longer period and this market would not be quite as powerful.
Let's just see. And don't be too dismissive. A strong 11 year bull market rising US$1677 is to be respected.
A$ Gold price.
The recent strength in the A$ has been as expected and the A$ gold price has just clung on to its uptrend. It has bounced nicely now and it on its way to the top of the uptrend channel. The first target is up around A$2,000/oz. The next channel projects much higher prices.
So let's come back to the XGD and the seasonal influences.
The 2000-2011 bull market in XGD (note this was at least eleven years) rose 750%.
The very first upleg into 2002 of the 2000-2011 stage of the bull market had a 130% gain before its initial 27% ten month correction ahead of the longer term gains which included 72% over the next nine months.
The very first upleg in the current next stage of the bull market was up almost 230% in 22 months before its ten month correction (which has now finished after a similar 27% decline).
The XGD should be looking to at least test of the 8499 April 2011 high within the next 12 months.
Big call, but higher gold and a still very share price depressed but highly operationally and financially successful Australian gold industry could do it easily.
Note that the ASX.XGD has 27 companies which are almost ALL Australian based companies, not the 52 often foreign and often not gold producers in the XGD in 2011!!
Let's hope S&P doesn't repeat the previous idiocy with choice of stocks in the XGD.
NST has pointed out that there are only 20 mines producing 300kozpa or more in Tier 1 jurisdictions (Australia (8), USA(8) and Canada (4)) (+3 in Ghana) around the world and its Kalgoorlie and Jundee mines would soon add two more to these 20.
These ten Australian large mines should give Australia an extra quality boost and eventually an international premium.
Seasonally the XGD has kicked off after Diggers since the XGD was initiated in 2000. Taking all 17 years we get an average gain of 8%. Taking out the misery years of 2008, 2013 and 2014 gives a 14 year 'adjusted' average gain of 23%.
FY18 with all the current action couldn't possibly be an average year so expect at least 23% in the December Half 2017 and more before June 2018.
Diggers and Dealers 2017
Another brilliant event after a brilliant year.
48 presentations and over 100 booths so a lot to see.
Starting with the Mining Company Awards let's look at these:
Best deal
Gold Road (ASX.GOR and component of Dawes Points 1 Dec 2014, 1 Jan 2016 and 1 July 2017 Portfolios) - Sold 50% of Gruyere 6moz discovery to new JV partner Goldfields for A$350m and is reinvesting into more Yamarna Belt exploration
St Barbara (ASX.SBM and component of Dawes Points 1 July 2017 portfolio + independent acquisition at A$0.21 in Feb 2015) - brilliant recovery to A$3.77 through Gwalia mine producing 265koz @ 10.7g/t and repaying A$347m debt)
Kin Mining (ASX.KIN and component of Dawes Points 1 July 2017 portfolio)
Acquisition and rediscovery of Mertondale (12km strike on Shear) and Cardinia Belts(~4km strike) with open down dip potential.
Fully deserved.
Other stars gave Kalgoorlie its renewed life and Australia is now entering a truly Golden Age as its (mostly) WA gold miners re examine old gold fields and push exploration and mining down to depths the rest of the mining world has considered normal for decades. Don't think 600m. Think more 1500m and as St Barbara is showing at the Gwalia Mine, 2600m and more. And think higher grades. Try 10-15g/t.
Technology is assisting here with 2D and 3D seismic being adopted.
The WA industry is now pushing on strongly after the production decline that essentially left it out of the 2000-2011 bull market in gold.
This graphic may just be too conservative as well.
Kalgoorlie has again become the regional centre of attention.
Kalgoorlie Geological Terranes
To the west of Kalgoorlie, the Coolgardie Domain system incorporating the Zuleika and Kunannalling Shears is prime gold production real estate. This domain extends from Kalgoorlie over 150km to Ora Banda.
This is giving us today's The World's Most Exciting Goldfield with Northern Star and Evolution utilising highly skilled teams to crack the codes to new and extended high grade deposits that have given us Tier 1 mines with >10 years life.
Both these stocks will be rerated as mine lives are bureaucratically confirmed. EKJV partners with NST, Tribune (ASX.TBR) and Rand (ASX.RND) should also more than double in the next year.
The evidence was there in front of us more than a year ago but some people are just a bit slow on the uptake. Note too little ASX.TNR that has a very large footprint in this region.
This is now the fourth largest goldfield for Australia with production of about 420,000ozpa and growing.
Table
Major Australian Gold Mines (current output kozpa)
| Boddington |
800 |
| Big Pit |
700 |
| Cadia |
620 |
| Zuleika |
420 |
| Tanami |
400 |
| Telfer |
366 |
This is a group effort and all players are likely to add to growing gold output over the next five years.
And the resource growth has also been spectacular for NST, TBR and RND as concentrated and committed exploration programmes have been running hard although EVN's Phoenix acquisition is being reappraised after being severely reduced in 2016. Overall resources should be much higher for annual reviews by mid 2018.
NST spent ~A$18m on Zuleika exploration and has added a net 35% to resources to the East Kundana Joint Venture (EKJV) below.
Source: NST
And increased its 100% owned Kundana/Zuleika operations to 1.8moz with much more to come.
Source: NST
NST's 100% operations will be rising to 175kozpa to give an overall net 300kozpa to NST during 2018.
Evolution is also now in full swing with 9 months of Zuleika exploration and its equally talented discovery team, whilst a few years behind NST, is finding extensions to its White Foil mine and also may have found down dip indications at Frog's Leg and recent Innis target drilling has picked up the structure trending to the south east. Zuleika Shear will take 50% of EVN's FY18 exploration budget.
Source: Evolution
The Phoenix acquisition is being reappraised after early disappointment but the results are now coming through.
Keep watching for results from exploration further to the north at Blue Funnel, Emu and Burgundy. All the way up to Agnes at Ora Banda, to the north of the Zuleika Shear.
Blue Funnel has 7km of Zuleika Shear tenements and will be a major exploration focus for EVN.
Emu is providing some Zuleika Shear style grades and intersections along the Kunannalling Shear to show that much more is come from this World's Most Exciting Goldfield.
Source: Evolution
This is just part of a major reassessment of the exploration potential of the Kalgoorlie region.
In just Evolution's Coolgardie Domain drilling the historic records show a very modest % of drilling has exceeded 200m vertical depth.
Source: Evolution
Repeat this over the Yilgarn with an industry generating cash and many new players raising new equity.
And then all of WA and then the rest of Australia.
Source: Evolution
To the North and East of Kalgoorlie we have many more very interesting goldfields:-
St Barbara Mines ASX.SBM - 265kozpa from Gwalia at Leonora –
SBM expects to be mining this to depths beyond 2600mbs
Saracen ASX.SAR - 300kozpa from operations near Laverton (Carosue Dam) and Leinster (Thunderbox)
Carosue Dam is 160-170kozpa. Open at depth.
Thunderbox is 130-140kozpa and also open at depth.
ASX.NST's 300kozpa Jundee Mine
The brilliant NST has repeated Zuleika at Jundee with a truly outstanding effort.
Resources have grown from 500koz on acquisition in July 2014 by 590% to 3.0moz with reserves up 350% to 1.4moz whilst output has exceeded 233kozpa with a 335kozpa rate achieved in June Qtr 2017. Note that gold output over 2008-2010 exceeded 350kozpa (410koz in 2009) on much lower resources and reserves.
Source: NST
NST expects it will exceed 300kozpa here within 24 months through new mining faces and a plant expansion to 1.7mtpa.
A properly funded exploration programme at Jundee might have a major impact here. Note that the upper zone in the green box down to 700m might just be repeated in the next 700m.
Source: NST
The Armada Trend is already showing continuation of mineralisation into the lower zone and the deeper Zodiac discovery of 4.8m @ 21.2g/t is very exciting.
Source: NST
Could NST find another 10moz in the next 700m? Probably.
In another year it might be that Jundee becomes The World's Most Exciting Goldfield.
WestGold ASX.WGX Combining 5 goldfields and 5 mills for >400kozpa
Gold Road ASX.GOR Yamarna Belt Exploration continuing after selling a 50% JV interest in the 6.2moz Gruyere deposit for A$350m to Gold fields Ltd.
Dacian Gold ASX.DCN Completing construction of 2.5mtpa plant for >200kozpa
Regis ASX.RRL Duketon operations giving 350kozpa
B
lackham ASX.BLK Wiluna is still very attractive and BLK is very cheap
Pantoro ASX.PNR Expanding to 100kozpa
Kin Mining ASX.KIN Mertondale and Cardinia Projects near Leonora
Special mentions
Resolute ASX.RSG With >300kozpa RSG is due a serious rerating again.
Metals X ASX.MLX Base Metals with excellent tin, copper and nickel operations
Agrimin ASX.AMN Lake Mackay Sulphate of Potash (SOP) Project Excellent presentation
BHP Nickel West ASX.BHP Nickel sulphates for Nickel-Cobalt-Lithium-Graphite Batteries. Interesting approach to managing your product for a changing market
Kirkland Lake TSX Gold intersection of 15m @1421g/t for the >200ozpa Fosterville operating mine in Victoria
West African Resources ASX.WAF Sanbrado Gold Project Burkina Faso with high grade core zone of 245koz @ 34g/t.
Sheffield Resources ASX.SFX Minsands development project in WA
Mustang Resources ASX.MUS Ruby producer in Mozambique
Egan Street Resources ASX.EGA Redeveloping the Rothsay Gold Project
Finders Resources ASX.FND SX-EW Copper mine in Indonesia on PER <2x from 25ktpa copper metal
Heron Resources ASX.HRR Has Woodlawn Cu-Zn-Pb-Au-Ag resurrection financed (A$240m) and ready for production in FY19.
The Diggers and Dealers Forum does showcase Australia's robust mining industry and the location in Kalgoorlie at the centre of gold mining never fails to impress with the entrepreneurial skills of the WA mining industry.
I own NST TBR TNR EVN MUS BLK PNR AUC GOR HRR or control in portfolios.
Barry Dawes BSc F AusIMM (CP) MSAFAA
+61 2 9222 9111
bdawes@mpsecurities.com.au
Dawes Points #68
14 August 2017
The impact of good economic data on the Australian resources industry has been mixed. It has generally disappointed in share market performance and has suffered from low market participation and, in my view, from a complete misallocation of capital. Why is it that the A$2800bn in superannuation money is so risk averse and unsupportive of new resource or agricultural investment in Australia?
The market requires more participants and capital to more accurately reflect the underlying value generated by managers in the current commodity environment.
The big companies have reported strong earnings, balance sheets and dividends but market interest has been limited. From my long experience in this Australian Resources Market it has been perpetually clear that it is truly a rising US$ gold price that really drives market interest. And we are waiting.
Shortages in nickel, rare earths, uranium, graphite, cobalt, iron ore, oil or copper can provide short term fluctuations and excitement in a particular sector but it is the US$ gold price that brings in investors to expand the overall market participation.
So hence the preoccupation with the meanderings in gold prices.
So where are we now?
The long term view for us here starts with the abandonment of the 1944 Bretton Woods Agreement in August 1971 when President Nixon shut the convertibility of US dollars into gold in August 1971 and thereby ending the Gold Standard. This allowed currencies to float and gold to determine its own level. It also allowed politicians and bureaucrats to play and meddle with currency and bonds.
This graphic says after the 1980 US$887/oz gold price highs, a 20 year pullback brought gold back to sub US$250/oz in 2000/2001 before resuming the bull run.
The 2011 downtrend has been clearly broken but US$ gold has pulled back to retest that downtrend. This action is very positive even if the 2001-2018 uptrend has apparently been broken.
Notable here is that the time frames involved in gold moves are substantial and for many, patience does run out.
It is now late 2018 so we have had a bullmarket that began almost 20 years ago, the most recent spike high was over seven years ago and we have had five years of trench warfare in the US$1050-1375 range.
This five year base has been grinding and the trench warfare has discouraged many investors and followers.
Nevertheless, as discussed previously, markets often exhibit a symmetry and in this five year base we had about 30 months from the July 2013 low to the important December 2015 low. It was a further ~30 months from that Dec 2015 low until the August 2018 low.
So to keep this symmetry we should see US$ gold meander but then move up to ~US$1370 for another test, then a short pullback and then hopefully much higher.
Time frame is about 3-4 months, but, who knows. The runups in 2017 were suggesting breakouts then but we saw no follow through then so we do have to just wait.
Gold also broke the April 2018 downtrend after forming and breaking out from a wedge. This is very constructive.
When US$ Gold does break out of this trading range, the speed and the price level in gold, will, in my view be powerful and high.
So what will be the drivers?
The Dawes Points view has been that demand from China and India has been absorbing all available gold from the West leaving it underweight and `short'. This demand is likely to continue and also grows with rising living standards so that there will soon be very little freely saleable gold left in the West and thereby this demand will be driving the US$ gold price much higher.
The demand numbers are large. Above ground gold is generally estimated at around 180,000 tonnes being all the gold ever mined. The demand from China and India since 2008 has been 26,000 tonnes or 14% of all gold in existence. Annual demand exceeds Western mine production.
Source:GoldchartsRus
Global gold mine production of gold is about 3300 tonnes of which China contributes around 400t and Russia about 260t leaving the West producing about 2650t.
Recycled gold scrap is about 1200tpa.
Western demand for gold in the form of bars, coin, jewellery, industrial demand is around 1500tpa and Central banks are buying about 500-600tpa. So this is at least 2,000tpa leaving only 1700-1800t surplus.
The data shows Asia is importing over 3,000tpa. With the transfer of so much gold to Asia the net market in the West has been in demand/supply deficit over well over 1,000tpa for the past few years with the drawdown of gold coming from Western inventories from wherever.
Strong evidence of this is available in gold flows of 400oz London Bullion Market bars from the UK to Switzerland to be refined into 1kg bars for delivery to Asia. Little evidence is available of the flow of these 1k bars back to the West.
The overall market is now in Deficit on the basis of this supply demand model.
So the gold market is in this Deficit position with gold buying being `met' by sales of futures contracts that have no real physical backing.
Hence, seeing the net position as well as 3000tpa to China and India it is clear that the West has been running down its available gold inventory. Who used to own this inventory and is there any left?
Demand/Supply should soon lead to a short cover rally in gold that should bring prices up to US$1375 and then drive it much, much higher very quickly.
Gold ETFs are expected to see rising holdings in a rising gold market so this will add even further price pressure.
However, gold has not broken this downtrend in Euros (but it is certainly getting ready to do just that).
Nor in A$, but also the trendline break seems to be very close.
Australian gold mining producers have done very well.
However, the gold price in various currencies is really relating to the US$ itself.
Where are we going here with this US$ Index? I really don't know.
This DXY Index at 97.38 is still below the 2017 high of around 104 and the technical pattern here provides no real indication of future direction.
However, there are several factors worth noting here that may influence future levels of the US$.
In addition, several new mines in 2018/19 will add significantly to output with Kirkland Lake's Fosterville likely to bring as much as another 300,000oz in 2019 from the Swan Zone (1.16moz @ 61g/t!) alone with stope ore grades of over 70g/t and average mill grades close to 30g/t.
2018 should also see record gold output and exceeding the previous high of 3012 in 1997.
Dawes Points also sees considerable potential in WA coming from the Pilbara as well as the Yilgarn.
New important hard rock resources have been established by De Grey Mining, Callidus and Kairos that are showing the Pilbara can deliver orogenic gold.
The Pilbara Gold Conglomerates also have very great potential and I am a believer here. Novo Resources may actually have three mining operations underway by the end of 2019.
The use of ore sorters is likely to significantly lower processing costs by reducing the tonnage to be treated. Conglomerate grades of even 1-2g/t can be significantly upgraded for mills having to treat just, say, 15% of the ore feed and yet recover 70-85% of the gold.
Don't rule out another 1-2mozpa coming from the Pilbara conglomerates at very low operating costs into 2020 and beyond.
I made a presentation on the Pilbara Gold Conglomerates at the Precious Metals Investment Symposium in Perth last month. The data is compelling. Copies available on request.
The key gold producers on ASX have also been providing an impressive growth trajectory with a selected group of 21 companies providing 4.5moz production in FY18 giving a 13% CAGR since FY14.
Northern Star, Regis, Evolution, St Barbara and Saracen have provided most of the growth.
Australia's biggest gold producer Newcrest has had a few technical issues that have limited its production growth but have produced another 2.3moz from its mines in Australia and elsewhere.
The pace of exploration is also picking up with nominal exploration expenditures likely to make new highs during 2018.
The commitment to exploration and development has seen the JORC Resources of these 21 key companies grow by 30% over the past four years to 135moz at an average CAGR of 7% with the share of Measured and Indicated rising from 63% to 70%. This is net growth after annual production which is now over that 4.5mozpa. Newcrest hasn't been so fortunate but has one of the world's largest resources base with very long mine life at Cadia and Lihir and its time will come soon.
This resources growth is almost always extending mine lives, not just adding new projects.
Reserves have risen faster and for these 21 key companies are now 70% higher at 50moz than in 2014 with a 14% CAGR.
Over the past four years, these 21 stocks in this sector have added almost 40moz give a net increase of 20moz after producing over 19moz.
Again Newcrest is consolidating its resource and reserve base but has numerous exploration plays that should add significantly to resources and reserves over the next few years.
These companies have reported excellent earnings and balance sheets are now in extraordinarily good shape with cash levels unheard of in the Australian mining industry over the past 30 years. CRA, MIM, NBH, WPL, STO etc never had these cash levels in the 1980s, 1990s and 2000s. It was usually debt that was the key feature of their balance sheets.
Strong cashflows and good balance sheets allow continuing capital reinvestment and also a robust dividend stream.
The dividend flow has been steadily rising as EVN, NST and RRL have paid out an increasing share of earnings and SBM, OGC and NCM have returned to the dividend paying list.
The very profitable East Kundana Joint Venture between NST and TBR/RND has resulted in some very good earnings numbers and shareholder activism has forced a special dividends of a gross A$250m (before TBR/RND cross shareholdings). Many MPS clients received TBR dividends in excess of their entry prices for the shares!
Investors who picked up on Dawes Points mantra that `gold stocks will be better dividend stocks than banks' have done well.
The ASX S&P All Ordinaries Gold Index has performed well since the Nov 2014 low but it has failed to properly reflect the Australian Gold Industry.
The 2011 downtrend has been broken here as well and has done a good retest of the downtrend and is now ready to head higher again.
Australian Gold Stocks have been leading the world in the current reflation after bottoming in November 2014 and after the pull back from the July 2016 highs the XGD is moving up to test the 5300 level again.
This has been a very volatile market so getting the timing right is very important.
A break through 5300 should signal a strong push through with the Gold Sector being well backed by production growth, resources increases and earnings with good balance sheets and rising dividends to further help drive this market.
However, a strong US$ Gold Price makes it all happen much faster.
This Correction Graphic shows that this XGD Gold Index is still playing catch up to the previous highs in 2011.
As noted, this ASX S&P XGD Index does not reflect the Australian Gold Industry and the large weighting to major gold producer Newcrest together with some irrelevant companies like Alacer distorts the true picture further.
It also gives no relevance to exploration companies or smaller companies.
This unweighted index of ten important Australian based companies with predominantly Australian production has totally outperformed the XGD Index but also Australian based companies with offshore gold production.
Being on board the Terrific Ten led by Northern Star has been the place to be but many stocks outside this Index have performed worse than even the offshore producers.
Ask me about the stocks that might be best for your portfolios.
The Australian gold sector is certainly outperforming its North American counterparts where the XAU is really struggling. This graphic suggests (who can really tell here!) a further test of the downtrend but it seems constructive.
Nth American Gold Stocks are pretty well despised and ignored by investors there and are at horrendous lows against the S&P 500 general market. A wedge is forming so there might be some strength showing through over the new few months.
Don't forget this long term relationship between the XAU and the US$/A$ rate.
And then what this looks like with the 1913 105 year downtrend only ~US$0.05 away at a time when calls for a lower A$ are ringing.
And you might to ask yourself what does this mean for the world if the A$ against the Euro breaks this wedging and jumps up sharply?
And here, also wedging against the British Pound?
It probably means gold's strength will soon be showing.
Call me to discuss
Barry Dawes BSc F AusIMM (CP) MSA AFA
Executive Chairman
Martin Place Securities
I own NST, TBR, KLA, BLK RIO, BHP mentioned in this report.
+61 2 9222 9111
bdawes@mpsecurities.com.au
13 November 2018 
As is the Dow 30 mega stocks. This channel analysis allowed us to call that Dec Qtr 17 sharp upmove and also to see the support in the correction and now a probable new high is ahead soon too.
And the Russel 2000 looks ready to burst higher into its next channel. Expect the microcaps to do much the same.
The basis for the higher share prices is well founded.
Earnings are good and profit margins in tech companies are high and rising.
In addition, this group of US economy graphics from World Economics and the Wall Street Journal are confirming boom and inflationary pressures.
>
These graphics are also highlighting the ever tightening labour market in the US but other data is showing that labour is even tighter in Japan (no immigration there!) and Germany.
Inflationary pressures could just be much stronger than you might be imagining.
The performances of some old fashioned sectors are are doing very well – retailers:-
Dow Jones US Food Retails and Wholesalers Index
And consumer discretionary stocks are out performing the S&P500.
Consumer Discretionary ETF vs S&P500
And the transports led by airlines are hitting new highs.
Dow Jones Transportation Index
The 4.1% June Qtr growth is unlikely to be a flash in the pan that so many are flagging. The bears are still growling 9 years into this massive bull market. Still growling!!
It was interesting to note that Warren Buffet's Berkshire Hathaway is also still aiming high and could soon move into its next channel to further new highs.
Interest rates are rising to better reflect borrower risk and inflation.
You will recall this from 
And bonds in my view are readying for another major fall in 2018.
Now whilst the relentless torrent of bearishness over Emerging Market economies is OK for Turkey, Argentina and Venezuela the rest of the world's emerging markets are just pulling back to the breakout line.
This graphic is telling me that China and India markets are in buying country for uptrend that will last a decade or more.
Morgan Stanley Institutional Emerging Markets Portfolio
This analysis of Emerging Markets from Oxford Economics paints a very different picture than that from the Commentariat.
But look at Shanghai from this graphic. Just pulling back to a 26 year uptrend. Many years of upside ahead.
Shanghai Stock Exchange Composite Index
India is just surging along as an important long term global leader. No Emerging Market claptrap here. Just more new highs.
India's Nifty 50 Index
Gold itself has come down to test the 2011 downtrend again. And has bounced back over US$1200.
Daily US$ Gold Price
>
The long term graph broke its uptrend but more importantly it has bounced off that 2011 downtrend line in a very important manner. And the RSI is very oversold.
Long term US$ Gold Price 1980-2018
US gold stocks have been savagely hit and the XAU Index sent back to the 2008 lows giving a decade of nothing. This is definitely buying country.
Philadelphia Gold and Silver Share Index
Gold stocks against gold bullion have provided another round trip but this too is screaming BUY!.
Van Eck GDXJ Gold ETF vs US$ Gold
But this seems to be very positive in the symmetry that has been created.
Surely there is some major upside developing here. This is now a typical reversal pattern extended over five years. Resolution of this to the upside would produce a powerful upmove.
US$ Gold 2008-2018
Stepping back is possible to see here a very oversold market pulling back on the flimsiest of fake news to a major long term buying opportunity.
Do keep in mind that today's PESSIMISM is high and that pessimism ONLY occurs during Wave 2.
Pessimism and Wave 2s represent the building up of cash by investors and build up in value in stocks.
Wave 2 pullbacks are followed by Wave 3s which are major surges and lead into that Optimism Leg.
We are there right now!
In Australia we have been much more fortunate with strong gold production growth, earnings and dividends boosting our key gold stocks. Dawes Points favourites NST and CYL made new highs in the weeks before the sad scene in North America where gold stocks made lows equal to 2008 and that great performer Kirkland Lake, with its Fosterville 1.1moz @ 61g/t masterpiece and its bold investment in Novo Resources' Pilbara Conglomerates, also made a new high.
With clients having their NSTs and CYLs rising, it was hard to be bearish.
RRL, SBM, EVN, OGC, RSG and SAR have done well although these have been caught up with the malaise despite many recently reporting outstanding operating and financial results. And major cash builds. I have never seen so much cash on the balance sheets of important mining companies.
Never during the 1980s or 1990s did the leading mining companies CRA, WMC, NBH or NDY ever have this much cash. It was always a matter of how much debt!
This cash is likely to make these good companies into great companies.
Site visits have recently been made to NST's Jundee and KLA's Fosterville super mines and I can assure you there will be much more coming out about these two great mines.
Many smaller stocks however have been savaged so bargains exist all along here.
Why have stocks like PNR, BLK, GOR, GCY been treated so badly?
The gold price in A$ has held up reasonably well and the 13 year uptrend from 2005 is holding nicely so it looks ready for a bounce and resumption of the uptrend. Another break through A$1700 should lead to much higher A$ gold prices.
Gold in A$ 2000-2018
It has also been apparent that silver has been behaving in much the same way as junior gold stocks. I see it as an important weather vane to closely follow. It has been threatening to move higher against gold for a few years now.
It could be emboldened to advance quite soon.
20 Years of Silver Vs GolD
Well known silver bug Ted Butler has credibly concluded that JP Morgan actually owns about 800moz of silver bought cheaply by continually keeping the price down and also has bought multi million oz of gold. Waiting for the squeeze to come.
Copper has been brought back on similar concerns out of China with speculators and also copper-backed loans getting margin calls.
China consumes about 50% of all copper and also other metals so whatever happens there is important. However, the longer term issues of consumption growth and the lack of new supply and a very small inventory buffer still says copper prices will be higher.
Long term Copper Price 1980-2018
Even platinum is back at important support.
A$ vs Sterling 1999-2018
And of course against the US$ itself.
We are close to breaking the 18 year 2001 uptrend in a very oversold position but the 105 year downtrend is now at only US$0.78.
A$ vs US$ 1999- 2018
So it seems that the past few months has provided loads of irrelevant fake news like the continuing decline of China, the peaking of the US economy (the recession bears just seem to ignore the data shown here in this issue) and the collapse of the US equity market just because it has gone up (most of these people have been short since 2009).
This has brought about a four month correction in a major long term bull market for gold that has been consolidating for five years.
The outlook is just as positive as ever and extraordinary opportunities are here for resources stocks of all sizes and sectors.
Barry Dawes BSc F AusIMM MSAFAA
+61 2 9222 9111
And indirectly with stocks related to consumer discretionary spending outperforming the S&P500 general index.
Additional confidence is being shown through the US Banking Sector Index which is performing well although not as strongly outperforming the S&P500 as in 2017.
The banks were the main beneficiaries of QE and are now lending out that capital.
US interest rates are continuing to rise and it seems that bond prices are lining up for another bout of weakness.
This is not surprising given that real returns on bonds are negligible to negative now that the CPI and PPI are creeping up.
The last two months (May and June 2018) have seen 2.72 and 2.80% yoy increases in the CPI and 3.9% for both May and June for the Producer Price Index.
With 2.9% yield on a 10 year bond and almost 3.1% on the 30 year then these are arguably negative real returns.
Importantly, the velocity of circulation of money (GDP/M2 money stock) is now strongly positive:-
So with the 4.1% GDP figure yet to feed into this formula it should now rise even faster.
The bearishness over the US equity markets still appears strong but I found this very long term (120 years) graphic worth looking at. The trend still appears to be your friend.
Source:
The strong steel production figures in China reinforce so much of the commodity bull market thesis that Dawes Points has been continually been presenting:-
The commentary on China’s vigour in improving air quality by maximising Fe units (1 unit = 1% = 10kgs Fe (iron) per tonne) in iron ores by severely discounting prices on lower grade ores is well known but it is also having stronger impact on its own remaining domestic ore production. China iron ore production is almost entirely lower grade magnetite ores requiring considerable beneficiation and often is accompanied by titaniferous magnetite(low grade ilmenite) and also some vanadium. Alumina and silica as impurities are also attracting larger demerits for China sourced Fe units.
Closure of these mines will make both low grade ilmenite and vanadium that much tighter markets.
China’s iron ore imports can only increase and with global freight rates on the rise again, Australia’s attractiveness for better quality iron ores can only improve.
BHP, RIO and FMG all reported strong June Qtr iron ore shipments to give record annual figures.
The pricing of iron ore is still robust although higher freight rates are eating into the delivered price into China ports.
The MPS commitment into Magnetite Ltd (MGT.ASX) with many billions of resource tonnes of high purity low mining cost magnetite ores remains firm although the timetable on achieving its merger has dragged on considerably.
The outlook for industrial metals remains firm despite the sharp falls during the Trump tariff issues.
The price falls appear to be now overdone and no impact is notable on the still-prevailing decline in LME inventories.
These graphics of the ASX S&P resources sector indices show that technical breakthroughs have been achieved, retests made and the uptrends should continue.
XMM Metals and Mining 2006 -2018
ASX S&P 300 Resources 2006-2018
ASX S&P Small Resources 2006-2018
The Mining Sector of the Australian Resources Industry is doing well but the Energy Sector has a very robust global backdrop.
The 3300million people in China, India and ASEAN have shown the world an insatiable demand for energy and now Non-OECD makes up 59% of global energy consumption. China has well exceeded the US in energy consumption and now takes up 23% of all energy.
Faster consumption growth by Non-OECD with 60% of total energy demand means global demand is now accelerating.
As has been pointed out on numerous occasions this graphic on energy consumption by fuel type gives a useful pointer to future energy demands.
The key features are the very small share from `renewables’, the massive future gas requirements of China and India (mostly LNG) and the renewed interest likely in nuclear energy.
The uranium market is now showing strong signs of a major demand surge, a tightened supply availability and much higher uranium prices.
Ask me about the opportunities in uranium stocks.
The significantly reduced universe of ASX Oil and Gas stocks offer outstanding value.
Oil is in excellent shape with record consumption at a time when OPEC is now capacity constrained and Iran and Venezuela have sharply declining exports.
Prices have rallied nicely and a period of consolidation is likely before oil prices move much higher in 2019.
Gold has been very frustrating for all but the CPI/PPI issues and the bond market positions could be the trigger that turns this market higher. Pessimism on some indicators is at near record levels as is the level of short positions held.
A sharp reversal is possible. Seasonally it is time but we just have to wait for the markets to confirm.
Northern Star (NST.ASX) made a new all time high last week and it is well on its way to probably becoming a 1mozpa producer by FY21. This stock has over A$500m in cash and remains a Strong BUY.
Our other favourite Catalyst Metals (CYL.ASX) is also up near its highs and is extremely well placed to make substantial new highs in the coming year.
It should discover another Bendigo (22moz past production) and current drilling north of Kirkland Lake’s extraordinary Fosterville (Swan Zone 1.16moz @61.2g/t within 1.70moz @ 23.1 g/t) is well worth closely watching.
Catalyst Metals’ extensive tenement holdings in Victoria.
Technically, CYL looks very positive.
Barry Dawes BSc F AusIMM MSAFAA
+61 2 9222 9111
The internal uprisings in Iran may be pointing out the end of another oppressive regime there. Likewise for Venezuela.
So many people have been reluctant to spend because the outlook was so forbidding.
With markets up so much around the world, who's sorry now?
Just look at the massive reduction in unemployment in the US as confidence is restored.
In the US, which is just one of the leading economies, the strong performances of the NASDAQ Composite and the Russell 2000 have been overshadowed by the those of the S&P500 and the Dow Jones 30 which all the doomsayers and handwringers delight in telling us that a recession is imminent and a market crash is inevitable.
Australian investors seem to like to listen to these doomsayer dummies which along with poor performances by the finance and banking sectors here have allowed the All Ords to be a chronic underperformer. Nevertheless, it is reluctantly joining the global bull market.
In contrast, the Dow has confidently bounced off its breakout line and is now ready to move higher.
The implications of this, the commentary above and the graphics below are pointing strongly to the Dawes Points Global Boom ™.
The NASDAQ Composite has ignored the bears and has made new highs and the recent successes of Apple, Microsoft, Amazon and Google with growing global sales (Apple had 65% of March Qtr revenues from non-US sources !) give strong indications that there are many years left in this extraordinary bull market in equities that will bring commodities along with it.
The channel analysis is indicating much much higher levels for many sectors as new technologies like Artificial Intelligence, VR/AR, Robotics, Electric Vehicles, Medical Technologies, High Speed Rail, Space Technology and new energy sources create important new industries.
Note that despite the all time highs, many of these indices are at within the lowest of the uptrend channels !
This graphic for Apple is extraordinary. It is at all time highs yet stiil within the lowest uptrend channel.
This is not bearish !
And Warren Buffet recently purchased 75m shares for about US$13bn at around US$170per share to take his holding to 170m shares. He wanted to own the whole company !
Apple with 5bn shares at US$190/share is closing in on US$1,000bn market cap and is just 14x EPS!
This strong performance is not restricted to the mega caps.
The Russell 2000 Index for small caps is doing well and also making new highs as stocks here embrace these new technologies.
This index and the following Russell Microcaps Index are showing the spirit of entrepreneurship that these new industries are reflecting.
This newly discovered Russell Microcap Index is also making new highs.
The pressure on the upper trend channel line to get into the next channel is strongly reminiscent of the early September 2017 position of the Dow before that fabulous 4000 point run.
Look at this company and its performance.
Edwards Lifesciences
There are many more like this.
Not your usual widows and orphans conservative go nowhere dividend payers stocks.
The doomsayers and handwringers can't even be bothered to look outside the S&P500 Index itself to see the lay of the land.
In addition, while the tech sector may be leading, bricks and mortar in the pentup US housing requirement as the Millenials finally enter the market and raw material demand in Asia will ensure the commodity sector will also do very well.
New Privately Owned Housing Units Started 1960-2018
So while the doomsayers are watching in the rear vision mirrors, the new waves of entreprenuers are globally changing the landscape and creating vast value while disrupting the old order.
The prices of the traditional LME metals are rising and nickel is rejoining the party.
Price index
Most of these metals have demand profiles that should exceed supply for some years yet.
And look at China crude steel production in May 2018! Up 8.9% on a year ago. China recession ?? Where are those China bears ? Stand up please and just leave.
And who has been saying Global Boom TM ??
And whilst commodities themselves are good, this sort of thing where the producers are generating so much cash is much better!
Whilst this is all good fun and is making money for the early adopters there is an express train running in many of the small to mid cap resources stocks.
The Mining Boom of A$440bn of investment in iron ore coal and LNG is really paying off with strong earnings being reported by the major key players and Australia's resources sector export revenues are surging as well.
But resources are far more than this.
I have been a great supporter of the entreprenuerial sector of the Australian Resources Industry.
The results have been very impressive and can be best seen through the gold industry.
Exploration is up
And Australian gold production is heading for a record in 2018.
The appalling and totally unrepresentative ASX.XGD Gold Index has maintained its uptrend, broken its 2011 downtrend and has broken above the critical 5000 level.
And look at this seasonal pricing structure. That's 30 years of data saying June often provides a low !
The opportunities in small gold stocks are numerous. The EOFY Sale opportunities are extraordinary !
But those in the copper, battery metals, oil and gas have been busy as well.
Exploration data figures are now flooding in with many impressive results announcements in such volumes that are difficult to absorb.
This is indeed a boom.
So just think about those hundreds of ASX small cap resources that are remarkably cheap. Gold, battery metals, oil and gas, industrial metals, mineral sands, uranium, rare earths, iron ore and coal.
It is all there and reflecting the resource sector and its special brand of geotechnical entrepreneurs.
ASX Small Resources is ready to fly!
Make sure you take advantage of the current End of Financial Year Sales !!
Value is remembered long after price is forgotten but those low price purchases early in bull markets are never forgotten.
Could you forget CDU at A$0.40 on its way to A$10, or MMX A$0.25 at A$6.40, SMM at A$0.046 to A$6.47, CMR from A$0.10 to A$6.25? Custom Mining from A$5 to A$105 plus MacArthur takeover?
Western Australia is indeed the Golden State and is now participating fully in this great bull market in gold.
Note that WA basically did not participate in the 2000-2008 section of the bull market. Gold production here declined almost 40% while the gold price rose from sub US$250/oz to over US$1000.
But the Australian Gold Industry operators are made of stern stuff and have brought about that brilliant recovery after taking back mines operated by overseas companies driven by different agendas.
The leading companies, NST, EVN, NCM, SBM, RRL and SAR have done marvellously well.
Gold production has risen, operating costs have generally fallen, ore resources have grown and mining reserves increased for longer mine lives.
Stock price performances have been good with NST, the star, hitting all time highs and being closely followed by SBM which has also done exceedingly well by passing its July 2016 highs. But all the leading (and many more emerging) companies have done well and are poised to do very much better. Very soon.
These leading Australian gold companies are now paying dividends and many of the smaller players will also join the list of dividend payers. And so they should. Gold mine resources are a wasting asset and shareholders need to be paid for providing the capital.
The better news though for shareholders is the GROWTH in resources and reserves of these companies primarily through near mine exploration.
This means that dividends from current operations will be paid for longer and at a higher rate.
This increasing maturity in the Australian Gold Sector is likely to lead to corporate M&A activity.
The current corporate activity seems is fascinating.
Market Leader NCM is very actively upgrading its own operations and also acquiring strategic holdings in some very attractive large scale development JV plays. Investment in Ecuador for Solgold's Cascabel and Lundin Mining's Fruta del Norte in are high quality high volume projects. The joint venture with RandGold in the very important Birimian Belt in Cote D'Voire West Africa offers access to additional large scale gold projects.
NST has been driving an internal operational programme that is increasing resources at Jundee, Kanowna Belle, Zuleika Shear and Tanami. Resources growth has been rapid so the corporate objective is to increase milling capacity. The acquisition of a 20% stake in Echo (EAR.ASX) will underpin the reopening of the Bronzewing mill as a low capital cost option to treat new NST open cuts ore from Jundee. Acquisition of WGX.ASX's Southern Operations will provide mill capacity for a substantial lift in Zuleika Shear ore production.
SBM is focussing on the continuation of the great Gwalia mine, operations at Simberi, some additional exploration plays and investments in our favourite CYL.ASX at Bendigo and with PEX.ASX deep copper plays in NSW.
EVN is focussing on near mine exploration at a very prospective Lake Cowal, at Mungari in the Zuleika Shear and at Cracow.
These companies are now cashed up but are currently and prudently sticking to the knitting of concentrating on improving present operations.
I imagine this will be a very different discussion in 2019.
Exploration is picking up and the Australian Gold Sector geotechnicians are delivering. The near mine action from NST, EVN, RRL and SAR in particular has been very successful but it is notable that new exploration models in WA have provided some interesting outcomes. The SW Yilgarn is seeing success in high grade metamorphics by AUC.ASX, EXU.ASX and CY5.ASX. This region is vastly underexplored but is delivering some outstanding results.
The XGD.ASX Gold Index is really performing well and is being shown in this graphic. This says a major change is coming as the uptrending forces defeat the downtrending forces.
XGD.ASX 2003 - 2018
The technical tension developing here will most likely send the XGD to a new high and I expect this in 2018.
It will be mostly, as I see it, new incoming investor buying that pushes this index higher.
The gold price in A$ has been reasonably steady over the past several years but here again the uptrending forces are meeting the downtrending forces. The downtrending forces have been winning for the past SEVEN years but it will have been a pyrrhic victory for the bears as they now get mauled. The pressure on gold to the upside is looking increasingly strong. A good break here should see a sharp move to A$2000/oz. Keep in mind that the A$ rises with US$ Gold so I don't expect a lower A$ to be driving this.
This steadying of the A$ gold price has had a stabilising effect on the XGD.ASX which is exhibiting very low quarterly volatility ( ie (qtly high - qtly low)/opening qtly price).
The average qtly volatility here is 26%. The past 12 months has been well below this average.
A change is due and likely. Could we get another 50% volatility here? To take the XGD to >8500?
I think so. I still expect a new XGD high in 2018.
Now come look at the individual stocks.
NCM is the biggest producer with the longest mine life. It is still emerging from corporate wilderness but it is now doing very well. Production is being expanded, debt is being (slowly) reduced, costs are being reduced, dividends reinstated and the corporate strategy is, as noted , giving Tier 1 growth prospects.
NCM 1999 - 2018
Being a very large cap stock (~A$16bn), NCM makes up a larger part of the value weighted XGD Index, and so NCM reflects the Index. A resolution of its ups and the downs is now due. Soon.
Stop Press : Tailings Dam issue at Cadia has affected NCM but this should not be more than a short term issue.
NST has performed spectacularly well and has made a recent new all time high.
The success at Zuleika Shear/Kundana and the wonderful achievements at Jundee will ensure this stock continues to rise.
Long Section of Jundee showing the potential doubling of the 10moz
My three year target of >A$20 should be easily achieved. Expansions with the newly acquired extra milling capacity will push both Jundee and Kalgoorlie above 300kozpa each and Tanami will provide some further production growth. So much development has taken place at Zuleika and now we should see stope grades rising to reserves grades as development ore share declines.
An excellent balance sheet including almost A$500m in liquid assets just makes this stock brilliant.
NST 2003 - 2018
SBM has also performed spectacularly well as its debt has been paid down and the Gwalia mine has hit its straps. The exploration potential is being examined through the application of seismic.
At new 10 year highs and looking to go much higher.
SBM has just announced a 10% holding in ABU.ASX for exploration in the Tanami
SBM 1999 - 2018
EVN has made some outstanding acquisitions with Lake Cowal being wonderful and Ernest Henry providing a great revenues and reduced costs input.
Lake Cowal exploration potential
Acquisition debt is now well down so corporate activity should re emerge. EVN is testing all time highs in its current operating form).
EVN 1999 - 2018
RRL has delivered strong financial results and dividends to shareholders and continues to add to its regional position.
RRl is also looking for expansion in NSW and elsewhere.
This graphic seems very powerful to me with a big upside target generated.
RRL 1999 - 2018
Two other major developers are doing quite well
GOR 1999 - 2018
DCN 1999 - 2018
Another important but smaller developer also about to commence gold production
GCY 1999 - 2018
And a potential fledgling NST in PNR
All these (other than NCM) are essentially outperforming the XGD.
This means that many of the medium and smaller players have UNDERPERFORMED the XGD.
It is interesting that many of the medium size stocks have similar price patterns to NCM and suggest resolution upwards too.
In contrast, many of the smaller stocks in the XGD are hitting multiyear lows as the lack of investor interest results in a self perpetuating low liquidity. Interestingly here, most of these stocks are picking up longer term uptrend lines.
Overall the Australian Gold sector is looking in excellent shape and should provide strong returns over the next few years.
The medium term shows the `battleground' of the past four years that will be resolved soon. The 2011 downtrend is clearly broken and a successful retest on it has taken place. A short term uptrend is in place and major resistance is at US$1350-70.
The short term is getting quite exciting now. How long will it take?
The gold price seems quiet with the price within a relatively narrow band between US$1050 and US$1370. Underneath it seems very active,
But the net effect is a very low level of volatility. Years of trading under the long term average.
The long term average is 12%. The past two quarters have been just 6%.
6% at US$1324 is US$79.
Another 6% or US$79 certainly breaks through US$1370.
The impact on North American gold stocks is also interesting.
The Big Picture from the Barron's Gold Mining Index is just exciting.
Those of you following Dawes Points over time will remember this graphic giving a long term buying opportunity again in late 2015. When everything else was so gloomy.
The very long term history is so important and allows you to `heed the markets, not the commentators'
The BGMI is hugging a downtrend from 1983 and may be signalling something big is about to occur.
Just more evidence.
Barron's Gold Mining Index 1940 - 2018
And I like this subset of that very long term. The lows in 2000 clearly ended something and started something else.
The pullback to those lows in 2015/16 ended something and again started something.
If you keep your eye on the big picture you can see the patterns emerging with much greater clarity.
If you wish to participate, talk to me about this.
Barry Dawes BSc F Aus IMM (CP) MSAFAA
These numbers seem to Dawes Points to be quite robust and clearly underpin the strength of equity markets.
The equity markets have done well with focus on the US. DJIA 30 was up 25% with Nasdaq Comp up 29% and S&P500 up 19%.
The best of the others was Hong Kong with the Hang Seng up 36% in 2017 and the Indian Nifty Index up 28%.
On a two year view the DJIA was up 42%.
The strong performances by the Asian markets reinforces the long term Dawes Points view on the rise of 3300 million people seeking a better life.
The Australian All Ordinaries was woeful with just 7% but the Resources Sector in contrast did very well. The recent break upwards through 5800 and then through 6000 was resources driven.
The bigger resources stocks outperformed the S&P 500 in 2017 and all stocks did vastly better over the past two years.
The ASX Small Resources Index was up 36% in 2017 and 114% in two years.
As pointed out previously, the so called Small Resources Index had 38 stocks in Dec Qtr 2017 with a market cap of around A$45bn with almost a third with market caps over A$1bn.
Not truly representative of what was really happening with smaller stocks in 2017.
The broader small resources market was somewhat of a lottery but many very strong gains were seen, especially in the Electric Vehicle raw materials stocks in lithium, cobalt and graphite.
The Dawes Points of 5 September (
Just snuck through with 3010 points gain. (Who could have thought a 3000 point Dow Jones 30 gain in four months possible?)
This channel analysis is quite useful.
Everyone would be familiar with the FANG stocks and technology but this graphic on US banks is highly relevant and very useful. This sector has just broken 14 years of underperformance against the S&P500 and is doing so at a time of rising interest rates. Very encouraging.
The housing market is also very significant and with this index making strong new highs and the housing shortage building up then the US should be stronger for much longer.
The resources sector did very well in 2017 and is positioned to do even better in 2018.
The industrial LME metals in particular performed well reflecting record consumption levels and limited inventories.
Average gains in US$ were around 28% (net of tin) in 2017 after 27% in 2016 (including tin). Cobalt was a star again and at US$75,500/t that is a great money maker for the few producers and also an aspiration for the newcomers.
The two year gains averaged 54% but these prices are yet to be adequately reflected in Resources Sector stocks.
Precious metals had steadier time with significant volatility and palladium hit a major new 17 year high and rose 75% in 2017.
The Dawes Points Composite metal price Index of monthly closes on LME broke its downtrend as noted in August 2016 and now seems on its way to new highs. Probably before 2020.
The individual metals provide their own interest.
Note how steady lead has been and how it will certainly rise further from here.
Copper and zinc have been strong but aluminium is looking to move higher from a low base and nickel should be following soon.
The inventory position whether it is LME or Shanghai is very low with massive drawdowns experienced in the past two years in aluminium, copper tin and zinc.
It has been fascinating to note over the past few years the steady weekly drawdowns in LME inventories for most metals then observing large increases as some trading group delivers a significant tonnage (against the current relatively low stock levels!) of metal across the warehouse. These have nothing to do with production or consumption. Nor mining or refining. Just some speculative inventory. Once these large positions are gone then these metals will be super tight.
The MPS LME Inventory Index is dangerously low at just one week.
The inventory position of metals on LME (and to a lesser extent on the Shanghai Futures Exchange) is now very low leaving no buffer at all for any increase in user inventories.
In any upturn it is typical for users to increase stock throughout the inventory chain such that DEMAND exceeds consumption. This should be expected to cause sharp rises in prices of metals.
This is already happening in zinc and copper will be following.
The rise in cobalt reflects rising consumption demand, limited supply sources and no inventory.
Consumption numbers for most metals show new records each year and the 3.35% pa CAGR has been remarkably resilient since 2009. The numbers suggest that growth rates will be ACCELERATING over the next few years.
Where will the metal come from?
Dawes Points has considered for quite some years that the industrial metals are far too cheap relative to their intrinsic value. This value is not just conductivity, strength, casting abilities, coating properties or coverings. The ever expanding uses of high performance alloys or specific metals based chemicals make them truly valuable materials.
From the stainless steel cladding of the NY Chrysler Building, ancient and modern bronzes (copper and tin), copper roofing in Hamburg, zinc roofing in Paris, lead sheet in London, brass (copper and zinc) door knobs to the feel, texture and shiny look the real value of metals is long lasting and true.
This channel graphic on copper gave us the targets of US$3.25 when copper was around US$2/lb in 2016 and it now gives US$3.59 in March Qtr 2018 and US$6/lb further out.
Producers of metals had a difficult five years from 2011 and those bringing on new high capital cost capacity treating low grade ores felt it worst. With oil prices likely to move higher again to push up bulk mining costs and power costs up on comminution processing the long term attractiveness of such new mines becomes difficult.
All this should only be resolved with higher prices. And possibly much higher.
The global steel industry did well led by China but India is catching up and should be the world's second largest producer by end 2018.
Iron ore achieved the Dawes Points forecast US$95/t in the March Qtr and after a pullback seems on its way to reach US$100 in 2018.
Energy rebounded in 2017 and also just reached the Dawes Points US$60/bbl for WTI at year end. The demand side has been stronger than the consensus and inventories have been drawn down.
Despite the improved oil price and the debacle in Australian East Coast gas policies the ASX smaller oil stocks were surprisingly friendless.
The 10 Year peaked almost five years ago and is showing danger is at hand after the most recent breakdown. Accelerating breakdown says it pretty well.
The direction of US T bonds will probably determine the fate of the US$ and the decline underway is possibly answering that question now.
The US$ Index is useful but not perfect and the channels suggest a re-entry to the 1984 downtrend is possible but the US$ is oversold. The next few months will show us.
The A$ had a reasonable year and a break above US$0.81 will see it heading toward parity and beyond.
This short term break is only part of that bigger picture that is indicating a very strong gold market for many years. It seems Wave 2 is just about finished and Wave 3 is getting underway.
The chart performances look outstanding and suggest a major further rerating is immediately ahead.
10 Years XMM Metals and Mining breaking through a neckline and soon to break a downtrend
10 Years ASX S&P 200 Resources XJR On its way higher
10 Years ASX S&P 300 XKR Resources Recent new breakout
10 Year S&P Small Resources XSR Break out with sharp acceleration coming
10 Year S&P All Ords Gold Index XGD - Massive breakout about to start after 18 mths consolidation.
The world is on track.
It is pleasing to see BHP taking up the One Belt One Road Initiative (Belt Road Initiative - `BRI') and pointing out the need for another 150mt of steel for already identified projects over the next decade.
The BRI will affect many countries in Asia and Eurasia so it is no coincidence that this graphic of emerging markets is telling us that the recent break out of this portfolio has many, many years to run.
And even the Australian Department of Industry, Innovation and Science has entered the commentary on growth scenarios for India for 2035 with >1000mt of steel demand in the high intensity option.
Source: Department of Industry, Innovation and Science
Some fancy numbers for an India that might surpass China in resources commodity consumption.
All these add to the Dawes Points expectation of at least a decade of economic boom to benefit Australia's resources sector.
Sorry if this is repetitive but it is happening and the markets have yet to properly value the stocks. This expectation has been tenaciously held here and has been unwavering.
The Australian Department of Industry, Innovation and Science has produced some helpful graphics on various Australian key exports.
This one depicts the iron ore markets:-
And this one is thermal coal.
Note that despite the ravings of most Australian State Governments and the nonsense from so called environmental activists there are 365 advanced technology coal fired power stations planned or under construction around the world. 135 are in India and it will be importing very large tonnages of low sulphur coal. Where will it come from? Mostly Australia.
It defies logic that closing of coal-fired power stations in Australia will have any impact on global emissions when 100 times Australia's near term needs are being built elsewhere.
All this has been excellent for the larger resources stocks as seen by the rises in BHP, RIO, FMG and S32 and as being suggested by Dawes Points over the past year.
The Metals and Mining Index has broken its downtrend and has moved higher after its own `goodbye kiss'.
This index is matching the Global Resources Indices as mapped by S&P.
But more importantly for us is the increase in market share of All Ordinaries turnover and the five week trailing moving average is now above 20% again.
So all that is very good for the bigger stocks but now let's just focus on the ASX.XSR which closed at 2342, up 5% for the week.
The current 2342 is now finally above the Dec 2008 GFC low of 2265 and the targets I see are over 4000 by end 2018 and 5000 within two years.
Note, too, that XSR market share of ASX.XAO turnover was 6% for week ending 6 October! The five week trailing moving average is over 4%.
This is a vital indicator and it is so positive.
The XSR has 38 stocks of which
Market share of turnover is creeping up again after the last pullback in US$ gold. Expect this to be averaging closer to 5% in 2018 as gold prices head higher.
The ASX XGD Index has not been a particularly good index prior to about the beginning of 2015 and so not surprisingly the XSR isn't too wonderful either.
As noted, it has 38 stocks in various subsectors but I would question the inclusion of the 6 mining services companies and it has just 4 industrial metals-related and no iron ore stocks.
Also for a small cap index, 15 of the 38 are over A$1,000m in market cap including 5 over A$2,000m. Just five are less than A$300m.
38 stocks with a combined market cap of $41bn.
Nevertheless, I particularly like the oil and gas sector and there are 8 here in the XSR. The Australian Eastern Seaboard gas debacle will assist gas producers capable of supplying this need and benefit will also flow to WA Perth Basin players. In addition, global oil demand continues to exceed forecasts whilst US tight oil output continues to underdeliver. Expect higher oil prices.
Also the XSR has six companies in the battery technology resources that cover lithium, graphite and cobalt.
Note that lithium producer Orecobre (floated by MPS in 2007) is making >US$6000/t operating margin on its FY18 target of 14,000tpa lithium carbonate and aims to more than double output to 35,000tpa. ORE has a market cap of around A$1000m (is this really a small cap stock?) and has recently made new highs above A$5.00.
Orecobre's view of electric vehicle demand is suggesting that the supply of lithium carbonate will not match demand so that higher prices are inevitable.
Source:Orecobre
The lithium battery market will require supply from many new sources and graphics like this show many players are in the game at differing stages of development. Opportunities are many.
Selection of Lithium Development Project Companies
Source: Sayona Mining Ltd
Graphite is the other key component in lithium batteries (along with cobalt and nickel) and within that expansive universe of development projects these are some with reasonable prospects.
Selection of Graphite Development Companies
Source: Bass Metals Ltd
Of the four metals companies in the XSR only one is under A$600m and the two coal companies have a combined market cap of A$5,300m.
In contrast, there are literally hundreds of small cap resources stocks with market caps below A$100m and many under A$10m.
So these do not get representation in any index but so many are very active.
One subgroup that is having its own boom is the new Pilbara Conglomerate Gold Rush that is bringing forth an exciting new concept.
The Witwatersrand Gold Deposits of South Africa are the by far the largest gold source so far on the planet. The gold occurrence is considered to be an alluvial accumulation of gold in thin layers of conglomerate (ie rocks made up of other rocks and generally deposited in some active riverine environment) rocks. The source of the gold and the actual occurrence of the gold is not yet conclusively determined but it certainly is a lot of gold.
Schematic Diagram of Witwatersrand Gold Deposits
The global inventory of gold combining all the gold ever mined is around 180,000 tonnes. About 60,000 tonnes at about 15g/t are considered to have come from the mines of the Witwatersrand and current estimates are that there are another 35,000t as resources and there would probably be another 50,000t that would be unmineable due to depth and other considerations.
This is around 150,000t of gold.
In comparison, Australia's biggest and best (so far) Kalgoorlie Golden Mile has produced about 3,000t (or about 100moz).
The idea of a Witwatersrand paleoplacer conglomerate analogue in Australia has been mooted around the Nullagine region in WA for many years and several groups have explored this target. Additionally small gold recoveries had been reported along the north west and north east rim outcrops of the basal unit of the Fortescue Basin but no economic significance had been given to these.
However in more recent years around Karratha, about 350km to the north, prospectors had been fossicking with metal detectors along a 10 km zone of outcrop of conglomerates and had a reasonable degree of success. (I have been advised that Karratha has the highest number of boats per capita in Australia. And the highest number of metal detectors per capita!)
Their shallow diggings have actually left a clear geochem signature over about 8km for professional explorers to now follow.
This surface rim outcrop is a basal unit of the Fortescue Group sediments.
The Fortescue Basin is a mafic (iron and magnesium-rich) volcanic rock dominated sedimentary formation that sits unconformably over the Pilbara Craton. The basin dips about 3-5% to the south. The age of the Fortescue Basin is the same as the Witswatersrand basin and the stratigraphy is quite similar.
The Beaton's Creek paleoplacer conglomerate deposit at Nullagine was in more recent years actively explored by Canadian company Novo Resources as a Witwatersrand target. The deposit is multiple stacked alluvial gold reefs and Novo considers it a major target for low cost near surface mining. Sumitomo has an option to farm in. This project has resources of 6.4mt @ 2.7g/t (558koz) made up of Measured and Indicated Resources of 3.39mt @ 2.7g/t and Inferred Resources of 3.0mt @ 2.7g/t.
Novo Resources became intrigued with the success of the prospectors subsequently revised its strategies and over the past year acquired extensive tenement around Karratha.
Source: Novo Resources
Recognition of a larger scale to these other conglomerates led to Novo Resources acquiring the Comet Well tenements and consequently in July 2017 entering into a JV with Artemis Resources at the contiguous Purdy's Reward tenement which has actual surface outcrop and an opportunity to economically test the concept.
As far as the exploration industry is concerned this is probably universally seen as a unique style of gold mineralisation not seen before.
Gold nuggets in the shape of watermelon seeds have been found throughout the thickness of the strata. In addition, quite high volumes of fine gold has accompanied the larger nuggets.
A few of these per cubic metre can give you those high grades.
Source: Artemis Resources
The Witwatersrand is similar but very different. A paleoplacer conglomerate is also known in Ghana at Tarkwa where a very large +15moz gold deposit @ 1.2g/t is being mined by AngloGold-Ashanti.
Conceptual Cross Section of Basal Conglomerates Extending 10km downdip
Source: Novo Resources
CRA had drilled a 2200m deep vertical hole deeper in the basin in the 1980s and intersected conglomeratic sediments at a depth of 1756m that assayed 11.7g/t. The important basal units were evidently not assayed.
This hole was about 65km away from Comet Well/Purdy's Reward to the south so the continuity down dip is possibly very high. Keep in mind the dip is only 3-5o.
Recent trenching bulk samples at Purdy's Reward provided 67g/t and some further trenching work with metal detectors was beamed live into the recent Denver Gold Conference. You can see it here. Worth spending 10 mins on this.
Source: Novo Resources
The drilling programme will be to confirm the extent of the conglomerate along this section and down dip. With the nuggety nature of the gold it will be the presence of the conglomerate itself rather than an assay that will be important.
Prominent Canadian Gold Producer Kirkland Lake owns the Fosterville mine in Victoria which produced 77,000oz in the June Qtr at 17.2g/t and is rumoured to have found over 500,000oz @>50g/t deeper in the mine. It likes high grade mines and has taken a C$50m investment for a 9.2% holding in Novo Resources.
Prominent Canadian Gold Producer Kirkland Lake owns the Fosterville mine in Victoria which produced 77,000oz in the June Qtr at 17.2g/t and is rumoured to have found over 500,000oz @>50g/t deeper in the mine. It likes high grade mines and has taken a C$50m investment for a 9.2% holding in Novo Resources.
Novo is now cashed up for a big exploration programme and with Artemis also having the 450ktpa Radio Hill Mill ready to start production here or on its own tenements after minor refurbishment.
Another ASX gold minnow De Grey Mining has also tenements at Louden's Patch in the Fortescue Basin and has also received funding from Kirkland Lake.
Cross section showing orientation of target area at Louden's Patch
Source: DeGreys Mining
Loudens Patch nuggets
Source: DeGreys Mining
The potential size of these deposits is without peer in Australia.
The Chairman of Novo, Dr Quinton Hennigh, is a highly regarded geologist and his view of the formation of the Witwatersrand was through precipitation of the gold from seawater and this allows for very large areas to collect the gold. The areas covered by Novo's tenements are over 10,000km2 and, like coal deposits or iron ore deposits, tend to be quite continuous.
Trying to put together a target size is very difficult.
If the 8km strike length at Purdy's Reward is continuous as the metal detector fossickers' track suggest and if the conglomerate is at least 5m thick (most up are up to 20m) and if it continues for at least 1000m down dip (as indicated by the cross section above) then a large volume of 40million m3 is generated.
If the grades are 10g/m3 (say 5g/t @ a Specific Gravity of 2.0) then 13moz would be a reasonable target.
Increase any of the components other than strike then we could have any of these:-
300moz is only about 10,000 tonnes.
And consider that the CRA hole was 65km away at 1756m depth.
Witwatersrand is 150,000 tonnes.
But clearly, proof of continuity will be critical.
Small resources stocks just might have a very strong run.
And the Gold Index just might double within the next 10 months.
Don't forget Mustang, ASX.MUS, now with over 350,000 carats of rubies to auction this month. At what received price?
At US$60/ct this is US$21m (A$27m)gross revenue but with US$100/ct it is US$35m(A$45m).
Costs should be well under US$10m. MUS currently has about 65% equity.
Not bad for 9 months work against a market cap of A$85m!
Of course as was noted in Dawes Points #69 local investors are very well cashed up.
Class Super SMSF asset Allocation Showing Low Equities and High Cash
The bigger brothers in the Future Fund have had a good steady record of appropriate returns but with just A$8bn in Australian Equities (6.0% of funds) and A$28bn in cash (21%) they will be missing out on the Resources Boom.
But, they are not alone. Look at the cash in China. And Singapore.
It should be a very interesting few years.
I hope you are on board.
Barry Dawes BSc F AusIMM (CP) MSAFAA
+61 2 9222 9111
Well, whilst the North Korea Fear has really yet to run its course, NONE of the other gloom has really happened.
So the question for all the Bears is why hasn't the Fear Trade worked? What do you have to say for yourself?
In contrast to the Fear, economic GDP growth figures have remained robust, equity markets around the world have gone to all time highs, prices have risen for many commodities and property remains in a global bull market. What is to Fear?
OECD's GDP Data and Forecasts
More recent data have been stronger in the US with estimates revised upwards and also for Japan which is showing life again after almost two decades in the doldrums. Growth is accelerating!
The US$ which was supposed be strong with rising interest rates just isn't. Market data, earnings data and prices of equities and commodities have continually exceeded general 'consensus' forecasts and those reading these actions would not be happy.
For the Bears who have been fortelling gloom for all of the past eight years since the lows in general equities in March Qtr 2009, what will their story be? An epiphany or is it a generational change coming.
The only real answer to why the Fear Trade hasn't worked is that people make the markets.
Not economists, Presidents, central banks, politicians, public sector bureaucrats, journalists nor 'the media'.
People.
And people make the decisions. People outside the professions, bureaucracies and corporate operators.
People and their dreams and fears. There are just times when people feel enough fear and bearishness to continue to withdraw from all markets and commerce and to just sit pat and build up a large wad up of cash. Stay calm. Reduce risk.
But new clothing, birthday dinners, a new car and just general stuff need to be bought. The coming of age party, the wedding, upgrading a house or new child just have to be paid for. Personal technologies always become `must have' items. The list goes on.
And life goes on, steadily. Wonderful.
However. 1400m people in China have next to no consumer debt and just want to raise their living standards. Another 1300m in India. 600m in ASEAN. 1000m in Africa.
Lives of these people are tearing along at a great pace albeit from a lower base. Around 1000m will be entering the `Middle Classes' by 2025 we are told.
Those living standards will require much more steel, copper, aluminium, zinc. And oil and gas and other energy sources. And food, especially protein.
The dreams of these people in Asia and Africa are far different to the fears in the West but rises in equities and commodities and falls in Western defensive bond portfolios are changing these Western fears to dreams again. And the dreams just might get a solid boost very soon in the Dawes Points World.
It is when the sirens are loudest on gloom that the best buys are made.
Heed the markets. The biggest markets are the most important markets. And the biggest market, the bond markets, has had all the hallmarks of bloated, irresponsible (read government deficits) and speculative (`free money' for amoral politicians to buy votes) activity that marks a market high. Professional and Retail Money to the tune of around US$100trillion was sucked in. There probably has never been such a concentration of global capital in one sector ever in economic history.
A crowded trade. A one way market. How will it end? Slowly declining at first because massive pension funds continually need long term confident yields to match long term liabilities. Pension inflow keeps rising but when safety refuge is no longer required then bond risk rises and pushes up yields and then coupons.
In contrast, global equity markets have surged higher with the US amongst the leaders but it is not necessarily the key driver.
But with the US, there is a definite change in mood.
Consumer confidence is at a ten year high but note that this Index was already moving higher and has accelerated under Trump's Administration.
US Consumer Confidence Index
Heed the Markets!
Now look at this graphic of the Dow Jones 30 Industrials.
Pushing on the trend channel overhead resistance line.
I can't recall ever seeing a market do this.
Usually markets hug the bottom channel trend line as support. This market is continually pushing against resistance! This is suggesting strength. And probably great strength. No Bear here???!!!!
I am still seeing so much commentary about stock market crashes to be caused by something but I also keep seeing data about investors seeking the safety of bonds.
This graphic doesn't suggest a market rolling over after spiking into a major high but rather one about to move up strongly.
In the longer term focus, should stocks break higher from here then the move could be quite sharp and rapid.
If this view is correct then there could be 3,-4,000 Dow points added by year end.
Long Term Dow Jones Trend Channels – Coming acceleration??
Keep in mind it is always `Sell in May and go away. Come back on Labor Day. (1st weekend in September)'.
September might just get a few underweight investors excited when they return from holiday tomorrow.
Here in Australia the All Ords has been woeful. Truly underperforming.
All Ords Long Term Trend Channel - Big upside coming
But there is hope. The short term picture is suggesting a sharp break higher through 5800 and to targets above 7000. This should come very soon.
All Ords Short Term Trend Channel - Big move coming very soon
Dawes Points considers that it will be the Resources Sector through copper, gold and iron ore that pushes this index sharply higher.
Dawes Points has also highlighted just how long this correction has taken after the preceding 10-12 year bull market. Strongly indicates that this new bull market leg will now last for years. Fear takes a long time to flush out but as early entrants make very high returns and book profits so will new entrants keep coming in a virtuous circle that will last many years.
It is happening right now.
The Australian Resources Sector relies primarily on the global steel industry with the three major stocks ASX.BHP, ASX.RIO and ASX.FMG being critical drivers.
This focus on the steel industry in China has been so important as it is a true real time indicator of economic activity in the world's largest economy for raw material consumption. China produces almost 900mtpa of crude steel and consumes about 800mtpa. The US produces 84mtpa and consumes 120mtpa. China consumes over 50% of the world's steel and over half of most other metals. What happens there determines what happens in resources commodities and steel is an excellent indicator.
India, is also emerging as a major force in the demand for commodities. Crude steel output in India exceeded 100mtpa in early 2017 and is on track to soon pass Japan as the world's second largest steel producer.
China and India with 1,400m and 1,300m people respectively have rising middle classes that have rising personal disposable incomes that produce rising living standards that require more consumer goods and governments there are to provide improving infrastructure to cater for more housing, services for health, education and welfare and transportation.
Again, this is most easily seen in steel production and consumption.
It is also seen in demand for gold. China and India almost ARE the gold market.
So the mine supply vs Chindian demand results in a major transfer of gold from the mines in the West (and from bank vaults) to the people of Asia.
Copper is moving up strongly as it should with no inventory, improving economic activity and insufficient new supplies. This bull market should run for many years so you can pick your own price target for your time frame. US$6/lb within four years is my call.
Why do we say this? It is not just a `chart target'. Disjointed supply and demand in commodities produces some very low prices and some very high prices. Short covering doesn't just occur at lows. It also occurs at highs!
VERY IMPORTANTLY note that the rally in copper into 2011 exceeded the 2008 high. This indicates very great internal market strength.
Or in other words, much higher demand than is currently forecast, no inventory and insufficient near term mine supply.
Long Term Copper Channels – Now in next channel with resistance around US$3.50
This US$ Gold break upward is of MAJOR significance. The six year downtrend from 2011's US$1923 high is now broken. And Gold's 2011 rally above 2008 shows even more internal market strength.
The 11 year bull market followed by a six year correction should lead to a 15 year or more bull market to come!
Or in other words, transfer of gold from West to East, Asian jewellery demand exceeding mine production, severely depleted gold inventory in the West and some serious short covering to come.
Long Term US$ Gold Chart - Six Year Downtrend broken - Price Targets are High!!
Iron ore is still considered by Dawes Points to be in a major bull market and, as we saw with copper and gold, new highs were made in 2011.
Dawes Points very successfully called the US$ iron ore price in 2016 and US$95 into 2017 and the US$100 by mid 2018 target still holds.
Current focus on the high grade >62%Fe haematites is showing the strong markets with premiums for grade but substantial discounts for lower grade material. This market action is indicating that global reserves and resources of high grade iron ore are being depleted. Blast furnaces operate on volume of the furnace so higher grade iron ores put more Fe units (1 unit = 1% = 10kg/tonne) for the same volume. Strong demand for steel in China is keeping blast furnaces at high operating rates so high grade is better. Also higher Fe grade means better operating efficiency, less coke and fuel and marginally less furnace slag to dispose of so reduced emissions and environmental benefits are noted.
RIO's new Silvergrass mine is higher grade ore to meet current demand.
Most of the 140mt of China port stocks is lower grade from marginal mines (and not from FMG) so it does not really affect overall iron ore prices just now but there is always the price/grade trade off and the market should move back to reduce discounting over the next year.
Iron Ore CIF Tianjin 62% Fe
The preference for high grade Fe content brings us back to the need for our favourite magnetite concentrates as furnace feed. Fe3O4 is just better all round than Fe2O3. Magnetite with 69-72% Fe delivered as a concentrate product not an ore. Consistent grade, fewer and lower impurities and worth US$20-40/t more than current 62% hematite. Lot's to like.
House stock ASX.MGT along with ASX.IRD, ASX.HAV and ASX.CAP have some lower capital and opcost magnetite projects in Sth Australia. Watch them.
The monthly check on crude steel shows boom times still with close to 900mtpa in China. India, RoK and Japan did well also.
Crude Steel Production in China Close to 900mtpa - US Hit 7mt in a single month – first in 2 years
So it will be the Resources Sector Leaders that will push up the Australian market.
And note this:-
A recent survey by ASX-listed Class Super (ASX.CL1) on its 140,000 Self Managed Super Funds (~24% of all Australian SMSFs) showed only 29% of total capital was invested in listed equities and 22% of total capital was in cash and term deposits.
Only BHP and Woodside as Resources Stocks were represented as having more than 1% of all capital. And less than half the accounts held them.
An article on this asset allocation referred to the Future Fund and Family Offices had similar defensive portfolios. Bizarre.
Class Super SMSF asset Allocation Showing Low Equities and High Cash
The world is underweight Resources Stocks through the Fear Thesis
So look at these Resources stocks that will drive the All Ords.
BHP Copper, Iron Ore, Coking Coal and Petroleum
BHP to Reach New US$ Highs by end 2018
BHP is much leaner and the balance sheet is better. Dividends will be flowing through.
RIO Copper Iron Ore Aluminium
RIO Has Broken Out with New US$ Highs Likely
RIO is in the best shape of the past 20 years.
FMG Iron Ore
Just a brilliant company! Output 170mtpa and costs under US$12/t. Balance sheet improving and dividends really flowing.
We should add BHP spinoff ASX.S32 to this list. A great company!
Did you see the recent June half results for the iron or operations of BHP, RIO and FMG? Some strong numbers. Much more to come.
Hard to imagine they will be lower in the Dec Half of 2017. A stronger A$ might crimp June 2018 but with >US$100/t maybe not.
The improving resources market is showing up in rising global sea freight rates.
A major increase in the supply of shipping caused a major decline in freight rates and distorted the significance of this Index. However, over the past few years, balance has returned and it is now closer to its previous indicator status.
And it is saying global trade is improving.
Baltic Sea Freight Index on the rise again
And bringing this all together is the A$/US$ rate.
The A$ was strong into 2011 (note this was another market that was strong in 2011 so will be very strong in this next leg) and broke the 1913 downtrend.
This is over 100 years of history.
After the pullback into 2014 the A$ is rising and will again break this 100 year downtrend once US$0.81 is broken.
103 Year Long Term Graphic of US$/A$ A Major Turn Here.
Heeding the markets not the commentators has paid off handsomely.
Investors have numerous opportunities to increase your wealth significantly over the next few year.
Seize the opportunity!
Barry Dawes BSc F AusIMM (CP) MSAFAA
+61 2 9222 9111
To understand all this you should be aware of how bond pricing works and what might soon be happening in these markets.
A simple assessment points out that rises in interest rates cause falls in the price of bonds and falls in interest rates cause bond prices to rise.
Also increased buying of bonds can increase bond prices to drive down yields (interest rate coupon divided by bond price, e.g., simplistically, 5% pa paid as $2.50 half yearly on a $100 bond so bond buyers bidding up the bond price to $105 will only get $5/$105 = 4.78%,).
Selling down of bonds to $95 gives a higher yield of $5/$95 = 5.26%.
The selling of a bond may reflect the holder’s wish for liquidity and not the overall interest rate environment.
Here also the lower the coupon on the bond the higher the price volatility.
And, the longer the duration of the bond the higher the price volatility.
The world now has a lot of low coupon bonds. So expect high bond price volatility.
Note the fall here in the 10 year bond from 133.21 in mid 2016 to 125.36 has given a capital value 5.3% lower and that bond now has only 9 years to run.
If you bought that bond at the yield to maturity of 1.35% in July 2016 you have already lost in capital the equivalent of 4 years of 1.35%pa income.
Remember last year when you were told the world was seeking income at any price. Sell your 2,3,4,…..5% yielding stocks and buy 1.35%pa 10 year bonds. What a bargain!
With the 30 Year T Bond the stakes become much higher.
A year ago these bonds peaked at 176.06 when yields were just 2.1%. Buyers then are now 29.6 points or 16.8% less wealthy and have lost 8 years of 2.1%pa income in capital losses.
Unlucky.
The long term for bonds looks just awful. Very unlucky if you own these instruments.
A very long term Rising Wedge has been in play for some years.
The deadly rising wedge has uptrends having lows in price rising faster than highs in price and at resolution usually falls sharply.
The US 30 Year T Bond has a 35 year rising wedge life history. Note the sharpness of the fall from that July 2016 high of 176.06 to 146.46 in March 2017. Nine months and 29.6 points is 16.8%. The next fall would be to 140 and then to a target of about 120 - equal to about ~20% capital losses in `risk-free’ investments.
Very unlucky.
Now this is the bond market for the US of A. It is not Italy. Or Spain. Or Greece.
Have a look at these numbers on the US Budget. The numbers from 
Some important things to note.
The deficits are well down on the peak years of >US$1000 over 2009-2012 but even with a recovering economy the deficits are growing again as the interest rate cost rises.
Interest expenses could rise from 6.5% of all other expenditures (6.1% of total Budget expenditures) in FY2016 to 12% by FY2020.
And look at the projected average interest rate of 1.90% for FY2020 and compare it to FY2017 at 1.49%.
Now look at this Projected Maturity Profile from the US Treasury (late 2015 I know but I could not find a more recent version. Why?) which shows <12% was longer than ten years and >65% shorter than five years.
Source: US Department of the Treasury August 2015
You could feel despondent about all this but rather than think about bond markets setting the interest rate level you should see this ~US$100tn globally as a wonderful source of capital.
The capital that has for years been denied to you to develop your project.
Keep in mind that the world should get by with 5% Ten year bonds as it has for most of its history.
The market place and equities and commodities will withstand these falls in bond prices as the capital flows out of this overbought, over-owned and wretched asset class.
It is already.
The US Housing Sector thinks it is wonderful! Bricks and mortar before paper assets.
Housing starts seem to be having a normal summer seasonal breather and should turn up for the Dec Qtr.
Banks just love higher interest rates because they give improved lending margins. And a rising Fed Funds rate forces banks to lend more of their outrageous QE money to the general market place at last at much higher margins.
And hope you noticed that banks last year ended 14 years of underperformance against the S&P500 and are amongst the market leaders now. Clearly higher bond yields aren’t important here either. 
So coming back to other 10 year bond rates look at this graphic with the US 10 year, US 30 Year ($TYX), UK 10 Year, German 10 Year and Japan 10 year included. The `negative interest rate’ hysteria was the top of this bubble!
Just as the US ten year bond has broken a nine year downtrend so have German and Japanese bonds. The UK is just at its downtrend and about to break through as well.
So back to equity markets and what about them?
The markets are speaking. While the bonds are selling off, equities are rising.
The Dow Jones 30 is making new highs and is accompanied by the Dow Utilities and Transports.
Nasdaq is making new highs.
And small caps indices like the Russell 2000 keeping making new highs. Remember when you were told to sell small caps and stay only with the large stocks because the end of the world was coming? More recently it was `FANG stocks were the only things pushing indices higher so watch out’!
So the US recovery is real and it is helping everywhere else and Germany is also leading the world to new highs.
India is next and what a leader this is. Loads of upside.
So much for Brexit bringing down the UK.
This Morgan Stanley Portfolio represents a composite of emerging markets and would include most Asian markets. The performances of Singapore, Thailand, Taiwan, South Korea, Philippines are similar to this proxy.
However, the most important markets are Japan, Hong Kong and Shanghai.
Japan is heading for new highs in this post-2009 rally.
Hong Kong is now ready to move substantially higher after a decade of consolidation.
Shanghai is parallelling the other markets and is now ready to approach and break through 3300.
In Europe as noted, Germany is leading with the UK next but France, Spain and Italy are also moving up constructively.
Closer to home, the New Zealand market has been one of the best performing indices.
What an outstanding run!
Which brings us back to Australia. The perennial underperformer.
But it could now be ready to play catch up.
Look at the ASX:XMM Metals and Mining Index.
The 2011 downtrend is broken and the index is getting ready to fly.
BHP, RIO, FMG and other resources majors are ready to run at last. (Note these are US$ prices in US market.)
Dawes Points has been an unrepentant A$ bull and should we break above about US$0.79 then a bigger rally should ensue.
And note also that the 104 year downtrend from 1913 comes into play at just over US$0.80.
So, what does all this mean?
Well, a major global economic boom is underway. It has taken much longer to develop than has been expected here but in turn it should now last much longer than you could imagine. Resources commodities from iron ore, coking coal, copper, aluminium, zinc, lead, tin, cobalt, gold, silver, palladium, platinum, minerals sands and much more will have higher prices. All will reflect record consumption demand, low inventories, insufficient new resource developments and not enough exploration.
Are you on board?
Make sure you have your portfolio together because big gains are coming.
Contact me to participate.
Barry Dawes BSc F AusIMM (CP) MSAFA
+61 2 9222 9111