This has certainly been uncharted territory for us all so we can only react to what major markets are doing and saying. The very long term price histories remain positive and suggest the past few months have seen declines to major long term support.
We now need to ponder what this all means in the longer term.
And price history suggests you can forget the doomsday scenarios.
Extremes in sentiment show many signs of very important lows and provide the basis for continuation of the DawesPoints Global Boom.
The rally in global equities has begun and it could be driven more by the assumption that the worst for Covid-19 may be over rather than just the US bailout. The markets are anticipating a peaking in new Covid-19 reportings and/or that a cure/cures has/have been found.
Let’s look at what the markets are saying and have been showing these signs for the past month as reported in my desk notes.
Dow Jones Industrial Index at important MAJOR long term uptrend support
Four year cycle low is probably in place
Sentiment indicators show high pessimism levels
Long term indicators suggest low is in place
US$ still strong – Euro made new 3year low
Bond markets well over extended
Commodities driven lower by oil price rout
Shanghai market still holding well
Iron ore steady
Long term ASX Metals and Mining index back to downtrend line
I still am of the view that this weakness will be over very quickly and the fiscal and monetary easing across the world will cause strongly inflationary pressures.
I am seeing numerous efforts to bring some vaccines and drugs to combat the virus and am particularly impressed with the results from the anti-malarial Hydroxy Chloroquine. Markets might be recognizing this.
These figures are very interesting for the understanding of this Covid-19 virus and who it hits.
A 2 April 2020 report from Reuters on Louisiana showed an astounding 97% of COVID 19 hospital admissions had pre-existing conditions:-
Chronic Kidney 23%
Cardiac Problems 21%
(these are not meant to add to 100)
I have not been able to independently confirm this data but it seems whatever data we are seeing it is more a matter of comparing apples with bananas, cheese and zucchini.
Age, gender, race, comorbidities, mortality/admission ratios and so much needs to be tabulated and analysed.
Control might prove to be far simpler than currently perceived.
This crisis is enforcing curtailment of civil liberties and changing expectations from citizens so we might see some most unexpected outcomes when this is all over. Will it bring better people into politics and will the media be reformed after so much partisan commentary from commentators who are instant experts on everything?
Good people need to, and are, standing up.
The opportunity for restructuring the global economy and supply chains is now massive. This should result in more manufacturing in the US and hopefully in Australia and may be a sea change here in attitudes and actions. New incentives for start ups, fewer regulations, revival of onshore oil and gas exploration, consideration of new onshore refining capacity and changes in labour laws.
The crisis has created problems in Europe and the pressures will surely lead to the eventual break up of the EU. That union has no leadership and its many members will be wondering why they are there at all. Euro to zero?
Also the problems in Iran could lead to a better outcome for its citizens and a regime change would curtail much of the insurgency in the Middle East.
And the impact on China may also lead to more liberalisation once the crisis there has truly passed.
The collapse in the oil price will cause restructuring in US shale production and in Russia. Saudi Arabia will be having budget issues as will all the high taxing oil producing countries.
Expect to see the permanent loss of at least 1mmbbl/day production from marginal fields in the US and Russia in 2020. Oil prices (West Texas Intermediate -WTI) in Midland Texas have been in the US$6-7/bbl range as demand drops storage is taken up. Expect a 25% decline in US oil production rate from ~13mmbbl/day to <10.
This crisis has also shown up problems in so much infrastructure so renewal capex should accelerate across the board with physical assets and also in IT and bureaucracies. Interesting times.
The economic impact of the shutdowns will be great on employment levels but many sectors will be completely unaffected in the short term.
The equity markets will discount the future and give a better idea of the outlook so it will again be a time to `Heed the Markets, not the Commentators’.
This is indeed a critical moment in the markets but could be the MAJOR low here as the bottom picked up the 1982 uptrend. Maybe some churning is required but the worst is probably over.
This graphic shows the extreme low channel and a jump back into the next channel.
The shorter term looks even better for a market bottom to be in place. Bounced off a lower channel and back into a mid-range channel.
It is worth looking at some of the sentiment graphics available.
Martin Pring with Stockcharts showed the NYSE Bullish % Index hit a level almost as low as 2008.
The US Put/Call ratio was at extremes with all Puts and no Calls.
Martin Pring’s momentum indicators provided a major BUY signal with many stocks making extreme lows then rebounding to show leadership in the S&P500 Index.
Ciovacco Capital has this interesting chart for the S&P 500 250 week moving average with probably fastest-ever test.
The short term has seen a close above the 200 week moving average but with confirmation needed with this week’s close.
Stocks are outperforming bonds and have just pulled back to the break out line. Very positive.
And this from Graddhy – Commodities TA and Cycles (@graddhybpc) suggesting the 4 year cycle low is coming in right now. This is impressive. Major sell off, massive volume right on time with this 4 year cycle.
f you have a Twitter account I suggest you follow him at @graddhybpc
Comparisons with 1929.
The 1929 fall was very dramatic and the recovery quite spectacular.
This graphic is not logarithmic so is not so useful. (Apologies that it is cut off, unlabelled and unsourced.)
However, this is Martin Pring’s view of 1926-1941 highlighting major selloffs.
The world worked on the Gold Standard then so prices had a true yardstick (even if it did change in 1934 from US$20.67 to US$34.00).
Today, with no Gold Standard, all prices are measured against a floating currency which means nothing can be measured against a fixed yardstick.
It is also worth noting that in the 1920-30s about 40% of Western World workforce was employed in primary industries:- agriculture, mining, fishing, forestry, energy etc.
Today it is 3-4% so low commodity prices benefit most of the other 96%.
But today, services are far more than 40% and here it is where most job losses appear to be.
Importantly, many of these services have low barriers to entry as far as working capital so we should see a strong pick up once the turn comes through.
Barriers to employment in many services might just be a desk, phone or a vehicle.
I have shown this long term graphic of the Dow Industrial Average from 1923 to present from Schism @jatkinson33 previously.
A break of the uptrend curve from the low in 1932 would be very negative indeed but it would seem that government fiscal and monetary policies are and will be very accommodative such that a decline would be unlikely.
Also, bull markets, and this has been a major bull market, generally end with a bang. This hasn’t!
Note that the Dow 30 was not even at the midpoint curve when it had its pull back to the bottom uptrend curve.
We have a long way to go yet to the upside!
The US$ seems to be retaining its strength in this index.
The Euro looks awful to me.
Bonds are well overbought, at EXTREMES and have hit the top of the channel….
… the long term is for a change in the direction of interest rates. This must be the low in interest rates.
Commodities are bottoming out after a massive energy related sell off into a four year cycle low.
The longer term in this 60 year price history of the CRB Index shows today is certainly at an extreme level but it is at a stage of close to the end of a 12 year decline from 2008.
This index is back at 1973 levels in nominal terms but it is heavily weighted to oil and petroleum sector products.
It seems to be coming into a major low.
Clearly precious metals and copper are well above 1973 levels and certainly iron ore so do not fit into this group.
ASX Metals and Mining
This is one of the best and most positive charts I can find. Pull back to 2008 downtrend and some long term support.
This graphic tells me a lot and is very positive. Ignore the current `fundamentals’ and consider that a retest of the 2008 downtrend line has taken place at a level that is horizontally important. The bounce should be robust from here.
BHP is well placed to continue its longer term outperformance of the S&P500.
Shanghai - Long term still heading up
It is surprising that Shanghai is holding up well and in 2019 finally broke out from its 2015 downtrend.
This market may be manipulated but it is still at the level of a decade ago despite rising GDP figures.
Shanghai – Short term still solid
And what might this mean? Shanghai vs S&P 500.
Iron ore is holding OK.
Gold – looking very strong - Much higher prices coming -probably quite soon
LKE has a lithium development strategy with projects in the prime Argentinian brine producing regions and utilising innovative technologies to minimise operating costs and to maximise earnings and sustainability benefits.
LKE’s 4.4mt LCE Kachi resource will utilise Lilac Solutions ion exchange technology in its project with a PFS due shortly for 2023 production startup.
Lithium sector undergoing improved conditions as supply and demand match.
The rise and rise of the lithium-ion battery is changing the world.
The versatility of this technology for application from smartphones, domestic appliances, power storage to Electric Vehicles (hereon EVs) implies universal acceptance and dependence. The advent of the high tech chemical refiner and processor for battery plants is changing the lithium industry.
It becomes critical to understand that whilst lithium prices are soft it does appear that they are bottoming and as the near term market balance is being sorted out. Underlying battery demand is inexorably rising between 15-18% per year together with EV and energy storage demand and will eventually impact the lithium price.
LKE has globally significant resources and has Lilac Solutions’ innovative approach to lithium recovery from brines.
Ion exchange technology cuts out the time and capital intensive evaporative process from the flow sheet.
Developing Quality Gold Exploration Portfolio in WA
Torian has quality exploration tenements in two prolific gold production regions in Western Australia and is ready to resume activity after a period of tenement rationalisation and management changes.
Kalgoorlie Region tenements have six projects including the Zuleika Shear, Credo Well, Mt Monger and Gibraltar. This Kalgoorlie region has a widespread blanket of transported cover and little outcrop and is undergoing a major re-evaluation and re-interpretation from basic principles as new gold hosting environments in the Black Flag Group (including sediments) are recognised. Over 127 targets have been identified by TNR on its tenements using geological and geophysical tools.
Leonora Region tenements have three projects Mt Stirling, Mt Stirling Well and Diorite. Mt Stirling is adjacent to RED.ASX’s very encouraging King of the Hills development and likely to provide near term cashflow from small scale mining.
Torian has accelerated the activity over its portfolio by farm-outs and is seeking to achieve gold production and build cash by end 2020.
Gold is a many splendoured thing and means different things to different people.
Concerns over debt, the Coronavirus or an overvalued stock market could be reasons for higher gold prices but I still consider gold now to be the Metal of Prosperity.
Asian demand is from rising prosperity and sales to Asia from the West represents a short position for many banks. The probe into JPMorgan gold price rigging may force cover of these short positions, especially in silver.
ETF and Central Bank purchases of gold in the Dec Half of 2019 offset declines in Asian demand but rising prosperity in the US pushed gold jewellery demand to the ten-year highs.
The US is experiencing a momentous acceleration in its Trump Blue Collar Boom. Just watch employment, housing and autos (the coming EV boom).
Economic Confidence Index is at the highest level in almost 20 years.
This long term demographic/technical graphic shows the US market is in the early days of a major bull market. Demographic changes are driving it.
Capital flows are showing bonds have peaked and are flowing into equities. And Property and commodities and gold.
Watch this video!!
Gold has continued to move higher in all currencies and achieved Friday monthly close on 31 January at US$1588.
The technical setup is for gold to now move higher in the near future.
US$1600 is an important level so a break above this should see gold rise almost US$200 to around US$1775 in a reasonably short time frame.
Moves to US$1800 are likely in 2020 and the previous high of US$1923 might be met or exceeded this year.
The longer-term picture is for a much higher gold price than this.
Gold in A$ is moving higher and the technical are suggesting a coming move into the next channel.
Gold can be traded using the ASX-listed ETF GOLD.ASX.
Silver is also setting up for continuation higher after its strong move in Sept last year.
As with gold, the long term pattern is suggesting a move that will take silver above its 1980 and 2011 high of US$50/oz.
Silver can be traded using the ASX-listed ETF ETPMAG.AXW
World Gold Council Data
The recently published 2019 data from the World Gold Council provided some interesting market trends.
Gold-backed ETF holdings reached an all-time high in Dec Qtr 2019 at 2885 tonnes, up 325 tonnes.
Europe now has almost as much in gold ETFs as the US.
Gold in Euros seems to be ready for a strong move as well.
The Euro still looks very weak to me and so the US$ will remain strong.
The US$ Index seems to be now ready to move higher.
Central banks were net buyers for 10th consecutive year with 650t to 34,500t and this gain, similar to
that in 2018, was the most in 50 years.
World Gold Mine production was 1% lower at 3463 tonnes and the first mine output decline in ten years.
Interestingly, this data shows the rate of change of gold production has a declining trend.
China has been declining from a record 453 tonnes (453,00kgs here) to 420 t but these figures may be optimistic. Peru gold output fell 9% in 2019.
Gold production in China has been from numerous small mines so the longer-term production is not assured despite official forecasts.
Other major gold producers Australia, USA and Russia were marginally higher.
Production costs as measured by AISC figures are rising again but this is more likely to be a function of declining cutoff grades rather than input factor costs.
On this graphic, ~6% of global gold production is still loss-making basis AISC data.
Recycling rose 11% to reflect the higher prices bringing out scrap.
The data showed gold in Indian Rupees drew out some selling.
Gold stocks in North America continue to consolidate and after breaking through some technical resistance should move sharply higher again.
The unhedged HUI index is constructive.
The Philadelphia Gold Index has major long term resistance at 110 so a breakthrough this soon into 2020 will provide an acceleration to 150-170.
The GDX ETF seems to be tracking the XAU but may be stronger.
This GDX is tradable on ASX under code GDX.AXW.
Also, a North American Goldstock portfolio BetaShares ETF MNRS.AXW (non ASX companies) is available on ASX.
Individual stocks like Newmont
And leading royalty company Franco Nevada, are doing well.
Overall, Nth American Gold stocks are now breaking upwards against the S&P 500.
And looking very positive against gold itself.
Here in Australia the ASX S&P Gold Index looks very constructive. New highs above 2011 were seen in 2019 but the Index (~39% NCM) has pulled back to good support where the 2 December Dawes Points BUY NOW was issued. Once XGD breaks out to new highs a strongly accelerative action is likely to take place.
NST is well on its way to A$20 and beyond.
And NCM is far too cheap. Haveiron will be a real winner for NCM by converting Telfer from a marginal operation to a long life very profitable mine. Recent rains should also remove any concern for water for Cadia.
ASX gold stocks are very cheap now.
All these constructive technicals for gold and silver ( and platinum ) are telling me the artificial down pressures on gold are being removed and a significant revaluation is coming.
But this and so much else is also telling me that US equities and hence global equities are looking very strong for at least a decade.
The massive over-commitment to bonds to ~US$110tn will provide capital flows to equities and commodities for the next decade.
Interviewed on Proactive Investors on Wednesday afternoon, Barry Dawes talks on Bulls, Bears & Brokers about his predictions regarding the gold rally that is happening now in the market.
As a long-time GoldBug, Mr Dawes has consistently read the gold market accurately and is happy to share his insights. Regular commentary has been provided through his stock market analysis "Dawes Points". He regularly suggests that, like himself, investors need to follow the markets, not the commentators.
Is Now The Time To Buy Gold?
If you have subscribed to Dawes Points or follow either MPS or Barry on Twitter, you would have received Wednesdays' commentary. Inspired by trends in the Gold price and in Gold Stocks, Barry's shows why he thinks it's a good time to Buy.
In fact, just in the process of accumulating the data for that issue saw the price jump 1 per cent, a definite sign of the gold rally!
Who Says This Is A Gold Rally?
The Dawes Points is an in-depth technical analysis of the stock market. The focus is usually on the effects world events have on the Australian stock market. Before starting his own firm Barry spent 30 years in investment management as a senior executive.
While his training as a geologist ensures Barry has an exceptional understanding of the resources industry. This is why when he gets excited, those around him get excited as well.
If you don't have time to read the full analysis, watch his latest interview to get the overview in under 5 minutes. And stay updated by following Barry on Twitter (where he regularly shares his favourite charts of the day).
How To Develop Your Own Analysis Strategy
To quote from the latest Dawes Points market commentary:
Watching the technicals of the price action of gold in US$ and also in other currencies helps a lot.
Watching gold stocks helps even more.
The Philadelphia Gold Index is the key index to watch. It has already broken out of its wedge and is showing leadership.
The fundamental factors for supply and demand for gold are, as repeated here often, many and varied so one perspective on debt, currency, COMEX market manipulation, monetary expansions, inflation, wars, economic turmoil or central bank holdings is good as another at any one time and the issues must all settle down as just a matter of buyers and sellers.
Who are the buyers and who are the sellers?
This is unknowable from week to week but if we come back to the @DawesPoints view of Asian buying and the West having sold and now considering to restock there is a very powerful argument for a continuing sharp rise in gold prices in all currencies.
Also, a strong economy will bring strong demand for gold through jewellery and maintaining insurance proportions of growing asset portfolios.
In the end though, we are all reliant on some form of technical analysis to ascertain what the millions of gold buyers and sellers are doing. There are so many different styles of technical analysis out there and many excellent exponents of their crafts. Most try to catch each move but at the end of the day, it needs to be recognised that this is a very long term bull market and we only need to get right the major moves and turning points.
This means we don’t get to sell all holdings at an index high but it pays to hold on to the key stocks like CYL that just continue to make new highs. And hold on to key stocks like NST, KLA, EVN, RED, TGM and TBR.
The @DawesPoints Global Boom TM is still well on track and is being led by the US equity market where we are witnessing the Panic Buying discussed here so often, despite the occasional pullback.
This @DawesPoints positive outlook on the US economy, the US equity market and the global economy hasn’t wavered over the six years of this newsletter’s existence despite the gyrations in all the major commodity, equity, bond and currency markets over that time.
The fundamental factor is the flow of capital.
The flow of capital from defensive positions in bonds and cash built up since 2008 and the decline in bond yields and interest rates reflects this hysteria that gave such low yields and even negative interest rates that in hindsight will truly be seen as the Scam of the Century.
Bond yields have bottomed here.
So bond prices are falling.
Rising yields and falling prices. Risk is rising rapidly.
This flow of capital out of these defensive positions into equities commodities, property and gold is only just starting and has many years to run.
Much is made of the supposed impending doom of the US$ because of all its debt but the markets are telling us something quite different.
The US$ continues to rise.
DawesPoints has been agnostic here because the US$ has been steady on this index for almost five years and rising against most other currencies outside this index.
But the Euro, with a 57% weighting here, looks quite precarious technically and Brexit is likely to remove the second-biggest economy and leave the other 27 and six hopefuls sucking on the teat of a bankrupt ECB. And the ECB intends to bring Climate Change into its policies to further add to Eurosclerosis. The UK Election is 12 December.
There is no technical support in this graphic for the Euro in the short term.
And nothing here in the longer term.
The Euro is the King of the fiat currencies.
On another note, the US$ might be hinting that the Trump Era will do what no man has done before:- halt the ever-rising budget expenditure affliction gripping the world.
The Impeachment Investigations clearly show a complete disregard for facts and due process and have brought out the massive cost of a bureaucracy intent on having very nice lives on the public purse. The public is starting to see the largesse in Foreign Aid and who are often the beneficiaries at the expense of the average taxpayer.
Those with inquiring minds could well do to access this and read `Here’s The Plan’ set out in the latter half of this opinion.
This could work a treat and save us from all that potential hyperinflation that would otherwise occur.
Something similar should be put intrain here in Australia.
So to Gold.
Asian economic growth continues despite all the negative commentaries and we see it as new highs in the Indian stock market and also in Taiwan with China still holding on.
Growing demand for gold is still with us despite short term variations.
Keep in mind a strong US economy will boost US jewellery demand and for gold as a share of rising portfolio values.
Gold in US$ had run to US$1566 in September and has had around three months (depending on how you view it) of consolidation and has pulled back to a low of around US$1446 giving a US$120 decline.
Interestingly, an uptrend line from Dec Qtr 2015 picks up US$1450 and this also ties in with trading around US$1450 levels in 2013.
Note too, that gold dropped over US$400 in the three months to late June 2013.
This could work in reverse with gold jumping US$400 over the next few months once the correction is over.
The long term gold price chart picks up this 2016 uptrend and shows its strong roots in the 1999-2001 lows. Nice!
The Gold price in Euros is looking good to me and seems ready to shoot higher. This may relate to that 12 December UK Election
Watching the technicals of price action of gold in US$ and also in other currencies helps a lot.
Watching gold stocks helps even more.
The Philadelphia Gold Index is the key index to watch. It has already broken out of its wedge and is showing leadership.
The XAU is actually leading the GDX Gold stock ETF out of the blocks but GDX is outperforming overall.
Key market leader Barrick is very well positioned for a sharp upmove soon.
Newmont is also ready but with a different pattern.
And the royalty companies are doing even better. And maybe ready to jump into a new trading channel.
A global exploration stock ETF GOEX provides another perspective for smaller companies.
We can go on all day with Nth American opportunities but this is where we are now with ASX gold stocks.
The Australian gold industry continues to grow its output and is on its way to 350tpa.
The quarterly data shows the strength.
Whilst WA is recovering it is NSW and Victoria that are providing the growth in output.
This shows the renaissance in gold mining in SE Australia as detailed in my recent Symposium presentation.
Interestingly we now have around 75% of Australian gold production from underground with Northern Star achieving outstanding mining productivity in its mines, Newcrest is one of the lowest cost major mines, Kirkland Lake’s Fosterville is currently the world’s highest-grade major mine (632,000ozpa @ 41.8g/t in Sept Qtr). NST has superior operating stats and Newcrest is a world leader in high volume block cave mining.
For the ASX S&P Gold Index, this looks like a massive inverted head and shoulders with a neckline at about 6000. The Index in August 2019 made a new high above the 2011 high and is simply pulling back to the neckline but an uptrend from 2012 is likely to keep the XGD above 6000.
Interestingly, those ~25% pullbacks seen throughout the 2000-2008 bull market is coming in here too.
Enough is enough!
And gold stocks have retreated against gold back to around 3.1x (but mostly through Newcrest with its 45% weighting in XGD).
So looking at the stocks let’s see what is afoot.
The leaders have made outstanding achievements in their local operations and have taken their expertise, technologies and balance sheets to opportunities in North America.
Northern Star with Pogo, Newcrest with Red Chris, St Barbara with Atlantic Gold and now Evolution with Campbell RedLake are showing the world their skills of underground mining.
This is a very long gold bull market so these companies have many years to accommodate these new assets and get the type of returns seen in their main Australian operations.
It was noteworthy that incoming Barrick CEO Mark Bristow said that his RandGold managers all had technical competencies and business qualifications as well. He also said the Barrick managers had only technical qualifications.
The global opportunities for Australian companies are very large from here.
NCM – Perfect pullback. No downside here!
NST – Still Moonshot. No downside
EVN - Tightly managed operations – Next growth phase – No downside
SAR – Tightly managed. Next growth phase
SBM – Next growth phase Already punished into excellent value
RRL - Still growing
SLR – Steady as she goes
RMS - The quiet achiever Over delivers
TBR – Still value here. Hidden assets
Smaller stocks provide excellent value
The Africans are coming together now
PRU - Growing nicely
CDV - Biggest discovery in the Birimian in over 20 years - 7moz So cheap!
TGM - Huge potential and near term production
Victoria is getting very exciting for us now with:
CYL - Hancock now 15% A$10 target still in place
KLA - Fosterville is outstanding. Buying opportunity now
KZR - Chasing up Castlemaine
CHN - Well cashed up
RED - How big might this be?
BLK - Down but not out
BGL - How big might this be?
NTM - Making good progress
PNR - Waiting on Norseman acquisition
NVA - >2moz in elephant country
NVO.V - This is an extra special stock Pilbara conglomerates.
This is an extra special stock Pilbara conglomerates. I am a believer.
Bulls Bears & Brokers: Martin Place Securities Barry Dawes on market highs and lows and the Super Pit at Kalgoorlie
Renowned resources expert and stockbroker, Martin Place Securities executive chairman Barry Dawes, is interviewed on Proactive about the highs and lows of the markets.
Stock Market Highs & Lows
With record highs expected in the equity markets, Barry discusses what investors will likely see in the coming months looking at the bond markets and the volatility in currencies. You will also want to hear his commentary on commodities.
What affect will Saracen buying 50% of the Super Pit at Kalgoorlie have?
Although a fan of gold stocks, for obvious reasons, Barry shares his advice around investing in certain developers and emerging producers.