Gold sector activity

Recommendation to buy gold and best quality gold producers

The ASX has hundreds of gold producers, developers and explorers listed with companies holding assets in Australia and throughout the world.   Should the US$ gold prices rise further as I expect then many of these stocks will be recover and make new highs. 

It is encouraging to see that most gold producers have completed their capital expenditures and now have fully operating mines.  The shake out in the mining industry has cut operating costs everywhere and open cut mines in particular will benefit from the lower oil price.   Earnings will rise and these companies will soon be paying or increasing dividends.

Paradigm considers that these producers and a few near term producers offer the best risk adjusted returns  at this stage of the market cycle and of course as the gold price increases the number of opportunities in higher risk/return plays surges.  Recoveries from stocks that have fallen 95-98% over the past several years could give some very high returns as they are revived.  

To begin with Paradigm suggests buying a gold share portfolio from 16 recommended stocks.

The Resources Sector around the world has experienced a long and difficult bear market that has resulted in major declines in stock prices for almost all resources companies.

You would be aware of the well-publicised price declines in iron ore and coal and most recently with oil as increased commodity supply has exceeded growth in demand.  Other commodities have been weak but not significantly compared to iron ore and oil.  Many resources commodities have real supply side issues over the next few years as key mines are exhausted and LME inventories are at historically relatively low levels.

Consequently, Resources Markets have been difficult to read given that, in contrast, the major economies of USA, China, Germany and India are reporting robust economic growth rates and global equity markets are at or near all time highs.  Indeed, the two most populous countries, China and India, are continuing with substantial infrastructure programs that require many of Australia’s mineral exports.

However, there is now some encouraging evidence that gold and the precious metals may be bottoming after over three years of decline and the shares of companies that produce them are now moving up.  Physical demand from India and China now exceeds global mine production and central banks around the world are buyers of gold so that the gold market is now tightening up.  Where will the new supply of gold be sourced?

In addition, threats from the Islamic State terrorists are affecting Western civil safety and financial markets can be unsettled by  physical and cyber threats.  Gold bullion prices may have this crisis factor now creeping.  Gold is rising in most currencies and especially with the current strong US$.

The key markets for gold stocks in North America are showing good signs of accumulation by new investors and strong rises have been achieved.

Here in Australia, the ASX Gold Index has risen over 40% from its lows in November 2014 which were at levels last seen in March 2002.  This Index is still 72% below the 2011 high so there is still much upside. The US$ gold price has moved up to over US$1220 after falling to US$1130 whilst the A$ which has fallen over 20% to around US$0.81 has pushed the A$ gold price to over A$1500.

It is notable that the ASX Gold Index peaked in April 2011 with a gold price of A$1404/oz but is now 70% lower at 2220 yet the gold price is currently around A$1500/oz.

Time for action

You have been receiving my Dawes Points newsletter and if you have been reading them you would have noticed the recent emphasis on gold and gold stocks.  You can download the last two letters here.  

2 December 2014   Gold – Now ready to rise? 

7 January 2015  Gold stocks up >35% in continuing recovery – much more to come

Since the 4 December newsletter the ASX Gold Index is up over 35% and up over 40% from the November low.

Some of those recommendations are up over 50% in just 5 weeks.

I expect to see much higher prices for gold and gold stocks in 2015 and made recommendations and gave price expectation targets for 16 key gold stocks.

Outstanding value exists in the sector amongst scores of companies but for now it is best to focus on the best of the current gold producers and a growing number will be dividend payers with yields well in excess of current interest income rates.

The stocks are

Company Code Price Year end Target
Current producers      
Doray DRM 0.53 1.10
Evolution* EVN 0.80 1.80
Kingsgate# KCN 0.75 1.80
Medusa# MML 0.79 2.50
Metals Ex* MLX 0.84 1.80
Newcrest# NCM 12.12 20.00
Northern Star* NST 1.70 4.50
Oceana Gold OGC 2.41 6.00
Regis* RRL 2.14 4.50
Resolute RSG 32.5 0.60
Saracen SAR 0.31 0.90
Tribune TBR 2.94 4.50
Near term producers      
Gold Road GOR 0.27 2.00
Crater Gold CGN 0.115 0.50
ABM Mining ABU 0.315 0.60
Blackham BLK 0.075 0.25

*Dividend payer  #dividend currently suspended

The improvement in the gold price and gold stocks may be a leading indicator for recovery in other resources sectors but there may yet be time for this to unfold before we need to commit.

For those wishing to have exposure to gold bullion itself the Paradigm/Bullion Capital arrangement allows clients to acquire gold bullion through taking delivery or having safe custody in segregated accounts in secure vaults in various capital cities.

Please call me or my colleague Les Szancer on 9222 9111 to discuss your needs in gold shares or gold bullion.

13 January 2015

Barry Dawes

 

If you are on our mailing list you would have received this recently, to you to encourage you to participate in the recovery of gold bullion and the ASX Gold Sector and, hopefully, later, the recovery of the entire Resources Sector after a bear market that has lasted almost eight years.

You can do this by opening an account with Paradigm Securities for stock market transactions and also through Paradigm’s arrangement with Bullion Capital for gold bullion.

A link to Paradigm Securities account opening forms is here.  Please call me to discuss a precious metal bullion account through Bullion Capital.

Please note the account opening process can be complicated by the compliance process so please follow the instructions given in the package.

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