Gold and Gold stocks correction finished – BUY NOW

by Barry Dawes
  • Macro environment is very encouraging
  • US T bond market now in high-risk state
  • Technical indications show US$ gold correction over
  • Gold in Euros and A$ looking to break out
  • US$ holding up, Euro still vulnerable
  • Gold stocks in Nth America breaking out again
  • ASX Gold index bottoming after 23% pullback
  • South East Australia Gold Mining Renaissance underway
  • Its buying time again
  • Comments from Proactive Investors video from 20 November

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.

S&P 500 Large Cap Index - New Highs

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.

TYX 30 year US treasury yield index - US 30 year T Bonds - scam of the century. How can this be?

So bond prices are falling.

$USB CNE Cbot 30-year US treasury bond price index - 30 year T Bonds - Goodbye kiss?

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.

$USD US Dollar Index - Cash settle

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

Gold Stocks

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

RSG 

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


WA Players

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


Some exotics

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.

Call me to participate.

Barry Dawes BSc F AusIMM(CP) MSAFAA

Executive Chairman
Martin Place Securities

+61 2 9222 9111
bdawes@mpsecurities.com.au

3 December 2019
Dawes Points #93

I own, or have in controlled entities, all the stocks.

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