Key Points

• China steel output makes new record levels of 1034bntpa
• China economic data still robust
• Iron ore prices to rise further
• Coking coal prices heading higher
• India to increase iron ore imports
• MENA DRI operations requiring magnetite are soaring
• ASX iron ore producers printing money`
• BHP ,RIO and FMG heading much higher
• @DawesPoints Global BoomTM on track

Call me to participate:
bdawes@mpsecurities.com.au
+61 2 9222 9111

---

The achievement of over 1,000mtpa in crude steel production in China in April 2019 is truly remarkable and may be even higher in Dec Half 2019. This is not a sign of a declining economy in China.

China is by far the world’s largest consumer of raw materials and steel is the most important non-energy commodity for China.  It consumes almost 50% of global steel.

Steel is so important across the economy so that whatever happens for steel consumption will just as surely be repeated in aluminium and copper as well as many other commodities where China consumes even more than 50%.

Steel itself is universal and gives a clear indication of activity in every sector within an economy.

The monthly World Steel Association crude steel production figures are one of the best near-real time indicators of economic activity.  These World Steel Association figures show the underlying strength of the economy in China and also show the economic strength of other parts of the world.

Obviously the current US-China Trade War will have some impact if it is not soon resolved but because China faces west and not east it is far more concerned with its own economy and those of Asia, Africa and Europe.

But with steel the figures are current and some of these numbers from other parts of the world might surprise you as will be shown a bit later.

The economy in China has continued to grow such that it is currently around US$14tn and 90tn Yuan RMB and despite all the perpetual bearish talk the economy has continued to expand.

The key point is that whilst the growth rate itself is slowing the China economy is adding around US$1tn each year.

Note this idiosyncratic table that shows GDP in US$ falling with a weaker Yuan.   

The US$ has been firm so the Yuan RMB has weakened against these other currencies over the past five years.

The key drivers in China are of course a liberalisation of the Communist State that has allowed rapid expansion of commerce of all kinds and also the urbanisation such that since 2000 over 350m people have been added to city life and now cities now make up 60% of the population.

China has a population of around 1420m growing at 5mpa with a demographic problem arising from the One Child policy that is likely to see a population decline from around 2032 as China’s aged cohort peaks.

Another key factor is the remarkable growth in Personal Disposable Incomthat continues to exceed GDP growth reflecting the entry of about 20m people each year into paid workforce rather than on subsistence farming in many parts of China. These people experience a sharp boost in their own incomes and so it affects the averages.  The self employed and the entrepreneurs are also adding to this growth rate.

This is particularly important factor as the Middle Classes in China as they move to housing, cars, appliances and better food. The appetite is voracious and inexorable at present.

The savings rate is still very high at >40% and vast hoards of cash are still reported to exist.

It is also noteworthy that wealthy Chinese (and most SE Asian) businesses have just two asset classes for investment – the business (including property) and cash.

Consequently the economic expansion drive remains strong.

Anecdotally, the driving forces of property (location, location, location) together with the dramatic urbanisation has produced very large rises in true property value and rental incomes that can readily support the high property debt load.

And I see no sign of any significant slowdown that could turn to a downturn although the momentum has clearly slowed. Nevertheless, overall investment in construction is still rising.

With this level of construction it is to be expected that demand for steel will be firm.

It is notable that demand for steel reinforcing bar is at robust new highs.

The MPS steel rate of change indicator is providing another turning point.  The 12 month moving average is ~5% higher than a year ago and the six month rate of change is turning up again.

Crude steel output should be even higher in the Dec Half.

It has been clear that domestic iron ore production in China has seen a dramatic decline of around 50% from highs in 2014 as the iron ore price fell.  Almost all iron ore production in China is magnetite ore and requires crushing and grinding beneficiation to produce the saleable 65-70% magnetite concentrate so it is a high cost source of iron units and mines closed accordingly.  Ore grades had been declining over the past 5-8 years down to around 15% but with closure of some very low grade mines the average has begun to rise again.

With rise in crude steel production and the decline in local iron ore production the level of imports rose strongly and Australia is the most important supplier.

Port stockpiles in China had risen in 2017/18but began to turn down so with the loss of around 40mtpa of Brazillian output the market saw over 20mt cut from stockpiles in just two months.  Clearly this was more strong demand than declining Brazillian supply when viewed against the massive 1034mtpa monthly crude steel production in April.

No wonder the iron ore price has been rising.

But as indicated above, it is not just China.

India has become the second largest producer of crude steel with output now around 110mtpa with and has passed Japan.

Importantly, India has produced this steel from its own mines.  Also India uses magnetite concentrates for use in the production of Direct Reduced Iron (DRI) and Hot Briquetted Iron (HBI) for about 30% of its crude steel production in processes that are using gas as the reductant rather than the blast furnace route with coking coal. 

The demand however is outstripping existing mines and bureaucracy issues over mining titles is likely to limit near term expansion.  India is now an importer.

India would like to be producing 300mtpa of crude steel by 2030 so the jump from 110mt will be 190m crude steel requiring about 300mtpa of iron ore.  Probably 60% of this will need to be imported.

Where will it come from?

So with India needing more iron ore and Sth Korea still growing and Vietnam accelerating rapidly from a small start to a current 18mtpa the market for iron ore must remain tight.

And in addition to Vietnam we have other strong growth in MENA where again most production is as magnetite concentrate fed DRI products that use very low cost local gas and these are fed into electric arc furnaces (EAFs) that use low cost electricity from low cost gas for steel making.

So it becomes no small wonder that the iron ore price is strong.

It is clearly a demand issue not supply driven.

The iron ore price completed a text book A-B-C correction with that 5 wave C completing a Wave 2 into the 2016 low and this enabled Dawes Points to then call for new highs to come in iron ore prices.  That outlook is still on track. 

Iron ore prices are heading up and so are those for coking coal.

So let’s now look at the Shanghai stock indices to see how the market views China.

Looks robust to me holding that 27 year uptrend and the recent 30% jump into 2019.

And I do like this relative performance chart vs the S&P500.

And while we are at it lets look at India’s Nifty 50 Index.

And also the Nifty against S&P 500:-

Capital is flowing to these `emerging markets’.

So the ASX Metals and Mining Index looks robust.

As do BHP

RIO,

 and FMG

The chart formations for these companies suggest VERY MUCH higher prices are coming for these stocks.

The Dawes Points Global Boom is firmly on track.

Don’t delay.

Call me to participate.

Barry Dawes BSc F AusIMM MSAFAA

Executive Chairman
Martin Place Securities

I own many of the stocks mentioned in this report.

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

10 June 2019

Key Points

• US$ Gold Price finishing two-month consolidation
• North American Gold Stocks reflecting strengthening gold
• A$ Gold Price resuming uptrend above A$1800
• ASX Gold Index exhibiting key reversal character
• Australian gold production achieves new record high of 331tpa
• Australian gold exploration hits new high of annualised ~A$1bn
• Dawes Points Dec 2014 Portfolio up 253% vs XGD up 220%
• Australian resources exports reach A$280bnpa in Dec Qtr 2018

Call me to participate:
bdawes@mpsecurities.com.au
+61 2 9222 9111

After almost six years the US$ Gold price is still meandering in a roughly US$200 band between US$1180 and US$1350.  Each move toward US$1350 gets the market excited but we have seen about half a dozen false dawns in just the past three years.

The true 'fundamentals' on gold have always been unfathomable.  The bullish position on so many levels has been there for years and is so clear, but price response has been muted.  The Dawes Points simplified position of viewing of demand from Asia running down inventory in the West and likely to cause a short squeeze is wonderfully logical especially against the background of massive open positions on COMEX that are impossible to cover from registered COMEX stockpiles.  Currency volatility continues and sovereign bonds still seem absurdly overpriced. Inflation is rising in so many sectors and all the key indicators are positive, yet the meandering continues.
    


But something else seems to have just happened last Friday 26 April 2019.
 
The ASX XGD Gold Index jumped 2.15% with some of the leaders rising 3-4%.
 

 
On COMEX after a soft start US$ gold jumped ~US$9/oz in a constructive technical pattern that could give gold the power to push through US$1300 again and back up to retest US$1350. 


 
The breaking of the downtrends from the 2011 highs for gold and many other related assets has been highlighted here repeatedly because it is to me clearly signalling that the global change in trend is underway.

Reviewing the North American markets for gold and goldstocks is critical to an understanding of overall investor sentiment and the direction of capital flows in precious metals markets.  If it not happening there it won't be happening here. 

Having said that of course, the ASX senior goldstocks have been the global market leaders but the smaller stocks are currently shunned and reflect the moods for many of their North American counterparts.

Moreover, the Australian market is far too small to be representative of global trends.   It is also clear that it is international funds not local funds involved in most activity in the ASX Gold Sector.

So, in the US it is the Philadelphia Gold Index ($XAU) that is the key gold index for the market place as it has the gold sector heavyweights like Barrick (GOLD) and Newmont (NEM).

As noted, we have been spoilt by the outstanding performances of the likes of NST, EVN, SBM, RRL and SAR in recent years but the XAU has still yet to break this important 2011 downtrend. 


    
In recent times, however, the market focus has passed from the XAU Index to the Van Eck GDX goldstock ETF as the market weathervane.

This HAS actually broken its downtrend and is very constructively supporting on its breakout line and now looks ready to move higher. 


 
As with the ASX gold stocks on Friday 26 April some North American gold stocks put on a 3-10% spurt.

Something is happening.

Rumours are suggesting a large central bank order is soaking up significant amounts of physical metal from the London market and from COMEX.

Might this be signs of the Dawes Points short cover rally we were talking about?

The US$ is gaining strength, particularly against the Euro (note the Euro might be heading for parity against the US$) but the US$ gold price is rising and the gold price in Euros is rising faster.


 
Gold in A$ has already broken out and is above A$1,820 again.
Positive price action of gold in many currencies shows the making of a true bull market in gold.

A bull market in ALL currencies.
 

 
From the Dawes Points perspective this constructive technical action across many markets should lead to the US$1350-70 resistance being tested and significantly exceeded in 2019.
 
The state of the Australian Gold Industry is excellent.

Recent Dept of Science and Industry data on Australian gold production showed a new quarterly annualised record of gold production at 331tpa.


 
At 331tpa Australia is the clear second largest producer of gold behind China.

Australia should see a new annual record of at least 325tonnes in 2019 and the is indeed a possibility of 350tpa within a couple of years.

Importantly, NSW (13% - mostly from Cadia and Cowal) and Victoria (5% - mostly from Fosterville) are beginning to show significant and growing shares of Australian output behind the leader WA (63%).

Expenditures on Gold Exploration are rising and the latest data giving Dec Qtr 2018 figures show an annualised rate of almost A$1000m and a very rapid and large recovery from the lows of 2014.  
 

 
Some Australian companies are highlighting new gold resource discovery costs of A$10/oz but even if the figures are A$50/oz this billion-dollar expenditure should add 20 million oz (~700t) of new gold resources per annum.

This could convert to an additional 1mozpa (30tonnes) of annual gold output each year within a couple of years through mine expansions or new mines.

350tpa doesn't seem so far away.

At the same time China just might find that many of its multitude of small mines might not maintain output so China might quickly fall from its now sub 400tpa gold production to less than 350tpa.    
 
The MPS Gold Matrix of 19 important Australian producers gives total FY2019 gold production from these 19 of about 5.3moz, up about 10.5% on FY2018.  This is almost 90% Australia-only production.

This forecast to grow further so that the 2014-2021 CGR is 12%pa.

Newcrest and Kirkland Lake are not included, nor are the Australian operations of companies such as Barrick, Newmont and Goldfields.  (The 21 key companies here includes two about-to-be-completed mergers to become 19 in the Matrix)



Additional stocks will be added to this Matrix so it will be clear to see that Australian gold production is still on the rise.

The performance of the XGD has historically been very robust in its bull phases.

From 2000 to 2008 it was 585% over 8 years
From 2000 to 2011 it was 750%  
From the Nov 2014 low the XGD is up 243%


 
The technicals of the break in the 2011 downtrend, the backtest on that downtrend line and then the surge, are classic text books examples.

It should not be too long before the XGD makes new highs above the 2011 peaks.

Note that NCM currently makes up around 43% of the XGD so NCM will be a massive influence on the price level3 of the XGD.

Also, the big seven (NCM, EVN, NST, SBM, RRL, OGC and SAR) make up 90% of the XGD.

The ratio of the XGD against the A$ gold price has been an average of around 5x but this ratio is only just over 3x.

I think 5x might well be more appropriate.

That is a 66% rise in ASX Gold Index against the A$ gold price.

Coming soon.
 

 
This graphic below had shown mostly one-way traffic lower since the 2011 highs but the XGD did exceed 6,000 in March 2019 to make new six year highs.

This graphic should become very useful again once the old high of 8499 is exceeded.  We will be able to look for and recognise the 25% style pullbacks that we saw in the 2000-2008 stages of this bull market.
 

 

ASX Gold Sector

The ASX XGD is not a very useful index given that is has 21 stocks and 90% of its market cap is covered by just 7 stocks.

There are hundreds of other gold companies outside the ASX XGD and that index is simply not representative.

MPS has therefore set up its own index for 25 emerging gold producers where stocks have current production, are in mining development or have a reasonable expectation of being able to mine ore and produce gold within 5 years.  
 
Smaller stocks have significantly underperformed the XGD over the past 18-24 months.


 
It should be time for these smaller stocks to catch up with their bigger cap brothers.
 
In early December 2014 Dawes Points called the low in the ASX XGD Gold Index in that November of 2014.
 
In that 4 December issue of Dawes Points a portfolio of gold stocks was recommended.
 
The 17 stock portfolio has been published a number of times.



The key to the portfolio was to overemphasise size and liquidity but to also include smaller stocks that could provide deliver very high returns.

The portfolio has been published a few times but this is the first time the weekly performance can be seen over the past 4.5 years.

In these 4.5 years there has been no trading in the model portfolio.  Just the original stocks.  No adding or subtracting from holdings, no rights issue take ups or option exercise. Dividends are banked and no interest is derived from cash at bank.
 
Over the 53 months the portfolio returned 253% at current market prices.
 
The XGD was up 220% whilst the XGDAI Accumulation Index was up 208%.
 
The Dawes Points diverse portfolio provided the best result even though some of the smaller stocks had appalling performances.
   

 
The current moment of confluence of technical price indications is suggesting that the current market mood maybe leading to a significant low in prices for the Gold Sector assets.
 
Accordingly Dawes Points has suggested another 20 stock portfolio to participate in the market for the next three to five years.
 

 
Let's see how this portfolio runs.
 
I will tell you the stock codes in a couple of months.
 
You will probably be able to work out the bigger stocks but some of the smaller ones might keep you guessing.
 
And as a parting comment, just look at the results of the 2012-14 Resources Boom.
Total Resources Sector Commodity exports in Dec Qtr 2019 hit A$280bnpa   Almost 70% of this came from just iron ore, coal and LNG.

The gains are coming from price and volumes.

The gain in total Resources export revenues since Dec Qtr 2017 was 23% up on that pcp.  Prices are even higher in Mar and June Qtrs 2019. 
 

 
It is hard to see a weaker A$ with a rising US$ gold price and such strong revenue growth.
The iron ore market is continuing to show the strength recognised here almost three years ago and there will be new highs in iron ore prices.

Oil is still tight and LNG prices will continue to reflect oil prices and not US domestic gas prices.

It will not be just gold that is to rise.

Call me to participate.

Barry Dawes BSc F AusIMM (CP) MSAFAA

Executive Chairman
Martin Place Securities

I own many of the stocks mentioned in this report.

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

28 April 2019

Key Points

• Dawes Points Global Boom well on track
• US equity markets heading for new highs
• US economy doing well
• US Consumer confidence continues to rise
• US bond rally complete?

Equity market roundup -  Heralding the Asian Century

• Asian markets recovering or making new highs
• Shanghai up 27% in 2019
• India looking robust
• Japan market recovering
• ASEAN markets OK
• European markets also looking robust
• Resources sector showing text book breakout
• A$ is looking firm
• Link to my podcast on global resources platform Palisade Radio

Call me to participate:
bdawes@mpsecurities.com.au
+61 2 9222 9111

2019 certainly has been interesting.  The sharp sell off in US equity markets in Dec Qtr 2018 seems all but forgotten as markets continue to rally.  Remember the `1929 revisited' calls?   Remember who said it all?  Well you will recall it wasn't Dawes Points!

Economic growth is continuing in most important regions and no sign of a real slowdown. The US markets are recovering.  The channel analysis here of the major indices has helped again.

Asian markets have been quite unperturbed about that Dec Qtr 2018 sell off.  What me worry?

They have been robust and you can see they are indeed heralding the Asian Century.

But the commentary focus at present is on the US and the President on domestic issues.

This seems to be a key time to indeed `Heed the markets and not the commentators'.  The economic commentators are about on par with the so called MSM experts on the Mueller Report.

The US economy does seem to be running smoothly and all those announced new capital projects together with the low unemployment can only be positive.  It might even mean a declining budget deficit at some stage.

But how can commentators be calling for a recession in late 2019?  Is it just the Fake News?

Consumer confidence has also recovered and is encouraging.

With the strong economy and the apparently contradictory near-concensus of pessimism for the near term I just keep coming back to focus on US housing.

This graphic of housing starts still suggests a housing shortage exists and with the recent influx of illegal immigration of another 1m pa the pressure must be increasing, particularly in the South West of the US.

Regionally, the South is doing well and better than the national aggregates.

Source: Federal Reserve Board of St Louis

The housing sector stocks had a savage sell off in 2018 but it seems to be bouncing back.

It is also useful looking at what those parts of the stock market that deal with the real economy.

Consumer Discretionary stocks and the Retail Sector seems to be looking reasonable.

Retail Sector ETF

So when looking at the major indices the picture looks quite reasonable.

The DOW 30 seems to be leading and wanting to make new highs.

Will we have a panic rally now?

And the NASDAQ Technology stocks are not far behind and with new highs beckoning.

NASDAQ is leading the broad S&P 500.

And the very broad Wilshire 5000 is holding very well indeed.

The Russell 2000 Small Caps is lagging though.

As would be expected, the outlook is not so rosy for bonds. The 35 year rally is over and the last gasp rally back to the break line for the `goodbye kiss' may also be over.  

The 'Good bye Kiss' rally peaking.

The US$ is looking firm and is likely to go higher.

It seems the Euro is likely to weaken and may go as low as parity against the US$.  With the UK the second biggest economy in Europe, its leaving could leave a big hole.

The Dawes Points thesis over the past five or six years has been that the global equity markets are looking good.

Germany has been a great leader of this entire bull market post 2009.

Even France looks very powerful.

Interesting to note this comment from Bank of America on major fund manager activities in early 2019.

Short European equities is the most crowded trade

A slowdown in China, at 30 per cent of those surveyed, leads the list of biggest tail risks cited by investors, followed by a trade war, at 19 per cent,, which had topped the list for the previous nine months; third on this month's list is a corporate credit crunch, at 10 per cent.

Short European equities, at 19 per cent, is cited as the most crowded trade for the first time in survey history, replacing Long Emerging Markets, at 16 per cent, which drops to fourth.

I guess there will be significant short covering in the months ahead.

But this is the Asian Century.

So look at these Asian markets.

India has about 1365m people and is growing at about 14m each year.

Japan is a bit messy but still looks OK.

South Korea has pulled back and is bouncing off the break line.  So much for the hysteria about Nth Korea destroying Sth Korea.  Were these the same people that said……

Taiwan looks OK.

As does Singapore.

And China proxy Hong Kong is behaving constructively.

And Shanghai is doing well.  Up 27% from the Jan 2019 low.  And it seems like a consolidation to me  before another upmove coming.

And this Emerging Market ETF just looks excellent with a massive ascending triangle.

Australia, with it's A$1520bn in savings deposits, is being led higher by resources.

Equities are looking good in this Asian Century Dawes Points Global Boom.

And finally the best to come is the resources sector led by the Leaders.

Text book long term breakouts.

BHP

RIO

XMM

The A$ should be a beneficiary of all this.

The US$/A$ rate might seem to be only holding tenuously but just note how low that 106 year downtrend is now.

Just around US$0.77.  Think of iron ore prices, coal prices, copper prices and LNG (oil) prices. Big boosts to export revenues.

 And just keep watching this too.



Palisade Radio kindly invited me to join a list of global resources contributors that includes Eric Sprott, Rick Rule, Frank Holmes, Ross Beaty, Ronald-Peter Stoeferle, Jim Rogers, John Hathaway and Bob Moriaty.
 
The link is here: https://palisaderadio.com/barry-dawes-a-much-higher-gold-price-is-coming/#DawesPoints

  
Palisade Radio

Call me to participate.

Barry Dawes BSc FAusIMM MSAFAA

Executive Chairman
Martin Place Securities

I own BHP RIO and NCM mentioned in this report.

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

2 April 2019

Key Points

• Gold still basing ahead of a surge in 2019
• Australian resources sector ready for breakout
• US Equities recovering
• Emerging markets recovering nicely
• BHP solid and near 4 years US$ highs
• Brent oil price has bottomed
• Many, many opportunities in ASX resources stocks
• Contact me to participate
  • bdawes@mpsecurities.com.au
  • +61 2 9222 9111

2019 seems to be shaping up for a strong year with robust demand for commodities and very constructive technical setups for many markets.

The selloff in the US Technology Sector may now have seen its worst so the outlook for the resources against a very pessimistic market place looks solid.

I still consider the evidence is extremely strong for the next leg in the Dawes Points Global Boom TM and for the Australian resources markets to start soon.

We are certainly HERE!

I continue to emphasise the time frames involved in this pattern (starting from Dec Qtr 1998 and extending into the ~2030s) and I need to add that the current market conditions (the rise of 3300m people in Asia) have never before experienced so this ~30 year pattern is unique in modern history and probably unique in all human history.

We incessantly bombarded with bearish opinion on China and the global debt position and now the next recession in the US is already underway.

Yet the markets say otherwise.

Sir John Templeton (1912-2008), one of the greatest investors, is credited with stating

• • Bull markets are born in Pessimism

 

• • Grow in Scepticism,

 

• • Mature in Optimism and

 

• Die in Euphoria

That is the theme of the Dawes Points ASX Resources Sector Pattern.

The terms are modified to give a clearer picture of the first leg rising (from the Pessimism of the prior cycle) in Scepticism and then falling back to Pessimism before setting off into the Optimism Leg. Euphoria is still many years away.

These are also the three impulse legs in Elliot Wave terms.

This pattern can be seen perfectly in the ASX All Ordinaries XMM Metals and Mining Index.

Wave 1 (the Disbelief Leg) peaked in 2008, fell in the GFC Pessimism then rallied with Hope into 2011 before that horrific 50% 15 month decline of Despair (or Pessimism writ larger) in to late 2015.

ASX S&P Metals and Mining Index Weekly Close 2006-2019

Reviewing the contemporary commentary in Dawes Points over 2013-2015, it was clear that it was all sentiment driving the markets. That Wave 2 into late 2015 was pure sentimental Pessimism. And Pessimism only exists in a Wave 2.

The fundamentals of strong growth in China, record after record levels of consumption of metals and other resources commodities, declining terminal market inventories, growing resources sector earnings and a strong US equity market were simply ignored.

After that late 2015 selloff, the XMM rallied for over two years before spending most of 2018 in a sideways to down fashion.

Note that the various corrections set up Head and Shoulders reversal patterns that give targets for much, much higher prices.

The combination of the break of the 7.5 year downtrend and completion of a smaller Wave 2 (set up by the pessimism of the Wall Street selloff) is very powerful.

We are now at the 2011 downtrend and breaking this will lead to a strong market acceleration to the upside.

Very high targets are generated by this market action

The leaders will be the market leaders of BHP, RIO, S32, OZL, WPL, OSH.

Most of these are on +5% yields with additional special dividends and buyback benefits.

But as has been stated here previously, the ASX Gold Sector is leading the broad global resources market.

The Australian Gold Sector is even more definitive.

This Dawes Points unweighted index of the Terrific Ten Australian listed domestic producers is up almost 1300% from its June 2013 lows while the ASX XGD itself made its lows in November 2014. The XMM didn't bottom until late 2015.

Those Terrific Ten were up almost 13x and truly off this chart.

These S&P ASX Indices of XGD, XMM, XKR and XSR do not accurately reflect the true state of the health of the Australian resources sector.

We need something better.

So it is always important to focus on the US$ gold price.

Gold really is the driver of the Australian resources sector.

Gold continues to act constructively in US$ and over the next few months should be able to rally back up to US$1300 and then challenge the critical US$1370 level.

US$ Gold 2009 -2019 Weekly close.

As noted, the gold price in A$ has made a new all time high in 2019 along with gold in most other minor currencies but it needs to make new highs in Yen, Yuan, Rupees and Euros before we get too excited.

Copper is also looking constructive and the demand/supply position is still very tight. LME inventories are still very low.

Oil is oversold and demand just keeps pushing at supply. Games over Saudi exports, Iran, US exports and US imports can't hide the overall issue that there is not enough low cost oil supply.

BHP is also providing leadership as it is anticipating better copper and oil prices.

So this now becomes very interesting to look at the myriad of smaller resources companies out there.

I have examined dozens of these ASX Australian resources companies over the past couple of months and consider that we are now at the equivalent of the June 2013 lows for those Terrific Ten Gold Producers.

How about another NST (16x), GOR (16x), SAR (26x), SBM (10x) or EVN (7x)?

I consider I have dozens of them.

Many sectors.

Gold. Copper. Oil and Gas. Battery Metals. Rare Earths. Mineral Sands. Uranium. Zinc and Lead. Iron ore.

The macro environment is right.

The US markets are bouncing back.

The chaotic events in Europe aren't fazing the German DAX.

Emerging markets are rebounding in a spectacular technical pattern.

The Dawes Points Global Boom is now ready for the next up leg.

Call me to participate.

Barry Dawes BSc F AusIMM (CP)  MSAFAA

Executive Chairman
Martin Place Securities

I own or control in portfolios most of the stocks mentioned in this report.

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

20 January 2019

Key Points

• Equity volatility to continue but global bull markets intact
• Subsectors show key outperformance
• US T Bond rally probably over
• Asian markets still rising with growing economies
• ASX Gold Index breaks 2011 &2016 downtrends
• Other ASX Resources Indices to follow
• Copper and iron ore still in uptrends
• Uranium sector now very attractive globally but few local opportunities
• Inflationary pressures to build
• Exploration discoveries in Australia to blossom

Call me to participate 
bdawes@mpsecurities.com.au
+61 2 9222 9111

The recent tumble in US Tech Stock markets has brought out calls again for the end of the world as we know it.

This is all standard commentary from the perma-bears and we all know that global government debt and everything else is pretty horrible out there and Australian housing prices are about to collapse and we are all on our way to Hell. 

These issues have been obvious for over a decade now but we have had far too many inconsistencies in the performances of markets to conclude an overall negative outlook is to apply.

Hence the continuing DawesPoints bullishness.

Personal experience shows that real bear markets result from economic contractions that reduce demand at almost every level. Bear markets are caused by liquidity issues starting somewhere in the consumer - business chain. The negatives just snowball and affect everyone. At these times consumers have too much debt and corporates have too much debt. Everyone cuts back to rebuild balance sheets. These periods are typically deflationary.

This time however, the biggest debt issue for us is government debt.

And government debt, unlike corporate or personal debt, is repayable in printed fiat currency (or electrons) so whatever happens now will be inflationary.

So as ever, it is `heed the markets, not the commentators.'

So what are markets really telling us?

In early 2011, when investor sentiment was still really miserable after the 2008-09 GFC, my presentation to about 40 MPS clients highlighted that 15 of the 30 Dow Jones Industrial Index stocks were at or around all time highs. Audience response was one of truly dropped jaws of disbelief.

The general commentary at that time was still very bearish but 50% of the world's most important stocks were at all time highs. The great bull market in the US just kept going after that.

This episode indicated that that just following an index or the commentators can be dangerous.

The current US market has provided some serious volatility and the tech stocks took a real cold shower.

So let's look at what the markets are really telling us.

Firstly the Dow Jones 30 Industrials has had a 19% pullback from its September 2018 and found support on an intermediate channel uptrend. (The S&P500 fell 20% from its high.)

Interestingly, eight of the Dow 30 peaked early in 2018 with that strong run up to 26,000 but then ten made their highs in December 2018 just before the major late December sell-off.

Also some interesting developments about sectors arise.

What do you think of this?

Could this be suggesting a change in leadership again from tech stocks to real economy companies. 

PG outperformed Microsoft for a decade then the roles reversed.  Is this another decade of PG outperforming Microsoft?

Another way of looking at this is a `Value Stock' ETF vs NASDAQ Composite Index.

Will `value' stocks outperform NASDAQ again for a decade?

I don't know where we will go from here in the US but employment figures are still rising strongly and I still consider housing the US is far from turning down.

Also with a sharp reversal in interest rates on Friday the counter trend decline in US bond yields is probably now over.

The next several graphics provide evidence that stocks may have seen their worst:-

Dow 30 Industrials – internal channel support.

S&P500 – support from major lower channel

NASDAQ Composite – internal channel support

Russel 2000 Small Caps - extreme sell-off to bottom channel

Russel Micro Caps – supporting on bottom uptrend channel

Look at the sub sectors:-

The US Banking sector is looking OK to me and has bounced off its uptrend line.

Consumer Discretionary Stocks ETF is continuing to outperform S&P 500. 

And Housing still has to make up a large inventory rundown and pick up in deferred demand.

Looking across these indices and sub sectors with some stocks at new highs and others at very oversold levels, I just do not see a further major decline that will break the uptrends since those 2009 lows.

If you have another opinion, please send the evidence from the markets.

Looking the Asian markets where 1300m people in India and 1400m in China are just getting along with their lives.

India is finally showing true strength with annual crude steel output exceeding 106mt and taking it past Japan to become #2 producer. 

The India Nifty Fifty is holding up well and matching its 6-8%pa GDP growth strength.

We are also seeing India quietly taking a stronger diplomatic and economic role in its region while the world is focussing on China-US relations. And we are painfully seeing a new assertive professionalism in the Indian Cricket Team. 

China has maintained a high rate of crude steel production and indicating that economic activity is still robust.

We need to note this rate of change model that the 6 month rate of change is declining but the 12 month is still rising.

Some negative data is coming from China but the Shanghai Composite has been declining for over three years, is at four year lows and is very oversold.

I am intrigued and fascinated by these two graphics of India and China vs the S&P500.

India breaking out against the S&P500.

And the Shanghai Composite suggesting its times of underperformance against the US over the past ten years might be over, at least for now.

The graphic for Emerging Markets overall still looks good to me. It is a massive ten year ascending triangle and the price is simply pulling back to the breakout line after a strong run in 2017.

Japan has suffered a sharp pull back and a breach of its uptrend line but we will have to wait for other signs before expecting further weakness or resumption of the uptrend.

And even Germany is oversold and should be bottoming. It has been leading the world markets for years.

Resources Outlook

The big news of 2019 so far for us has been the breaking of the 2011 and 2016 downtrends by the ASX Gold Index.

As pointed out last week, the Australian Gold Sector is performing well with its growing production profile and its improving financial position of earnings, balance sheets and dividends.

The Index has finally broken the 2011 and the 2016 downtrends and seems ready to push much higher over the next few years. The Index ran very strongly from the global precious metals lows in late 2015 with a 100% gain into July 2016.

30 months of consolidation should provide the Index with enough power to make a new high above the 8499 of 2011.

The strong performances of NST, EVN, SBM, RRL and SAR have been overshadowed by the very bulky NCM which was really following the Nth American markets and underperforming.

NCM has now broken its 2011 down trend so will have a very large impact on the XGD itself. 

NCM makes up ~38% of the ASX Gold Index and is almost three times the weighting of the next biggest company in this Index. 

This stock is a strong buy.

As stated here numerous times, gold is the key driver in the Australian resources market.

And the Australian Gold Industry is leading the world in the global reflation currently underway.

This leadership is through mining and operational activities which include extraordinary productivity gains through application of new technologies, processes and procedures.

It is also encouraging to see BHP's copper TV advertising to promote BHP as a technology company.

The Australian Gold Industry is well ahead here too.

The Gold Industry also has excellent operating margins, growing earnings and flowing dividends as has been reported.

For whatever it means, the ASX Gold Index has been trading at just under 3x the A$ gold price. In 2008 it was >6x.

At A$1800/oz and all up pretax costs of say A$1200/oz the gold Industry would have a A$600/oz margin or 33% pretax earnings yield.

At 30% tax rate this is a 23% earnings yield or PER of 4.3x!!!

Very cheap so 5x the A$ gold Price would be a sector PER of only 7.2X .

The major ASX resources indices have been moving sideways in draining 12 month consolidations that are completing the right hand shoulder of the massive reversal pattern with the lows in early 2016.

As the stocks break higher with gold as the driver, the upside becomes quite large.

XMM Metals and Mining Index

XJR ASX 200 Resources

ASX XKR 300 Resources

ASX XMR Midcap Resources (8 stocks only - Yet another garbage index!!)

And Dawespoints has already noted that BHP, RIO, S32, NST etc are `value' stocks so here is the best `Value" vs ~Growth' opportunity:- 

Australia's export volumes are rising as are US$ prices and with the A$ at low levels against the US$ the revenues and earnings for Australian based resources companies are very robust.

Copper looks strong with excellent growing demand and limited supply and with no LME inventory.

And ironore is likely to be on its way to new highs over the next few years. Another attempt on the 2011 downtrend line should do the trick. 

The LME industrial metals look firm and are heading for new highs into 2020.

And LME inventories are ridiculously low despite a modest recent rise in copper and aluminium while the rest just keep declining. 

The Uranium market is getting very tight and is ready for a substantial rise over the next decade. The price is still severely depressed on a long term basis but is now improving. 

Note that the U3O8 market has jumped 30% since May 2018 and should see much higher prices over the next few years.

New nuclear power stations are being built in China and India but the supply has not yet been found or contracted. Utility contracting in Mar Qtr 2018 was 24% uncovered for 2021 and 62% uncovered for 2025. Production has been shut in by Cameco to further tighten the markets.

Substantial shortfalls appear probable and inventory building is likely to create additional demand. 

Uranium market leader Canadian Cameco (US$ chart) is performing well and should see much higher share prices in this coming cycle. 

Australian Exploration.

While all these metals and resources have robust demand/supply positions we also have the added bonus of exploration activity.

The many excellent results over the past several years have generally not been rewarded by the market place and are often completely ignored.

The next couple of years are likely to change all of that. Work being carried out by many companies in gold, copper, nickel, all the other EV metals, iron ore, uranium and oil and gas has, is and will be finding important new resources. So keep watching.

Also, note that about 68% of Australia's bedrock landmass is covered by sediment of varying ages and thicknesses that hinders exploration efforts.

In consequence, the past decade has seen some outstanding advances in exploration procedures and technologies that have resulted in some important discoveries.

New geophysical tools are being developed and applied and the current Geoscience Australia A$100m AusLAMP programme is utilising the magnetotelluric (`MT') technology to find subsurface deepseated mineralised intrusive bodies that have fluid pathways to surface or near surface sulphide mineralisation. 

The results to date are very interesting and a nationwide programme is underway.

http://www.google.com.au/url?sa=t&rct=j&q=&esrc=s&source=web&cd=5&cad=rja&uact=8&ved=2ahUKEwjyifTUrdrfAhXXdN4KHZs_Ax4QFjAEegQICBAB&url=http%3A%2F%2Fwww.ga.gov.au%2Feftf%2Fminerals%2Fnawa%2Fauslamp&usg=AOvVaw3zsfFcc4ZFF5JfTSzIZV_w 

South Australia is embracing this technology with vigour.

DawesPoints has already mentioned the Big Three recent potentially important copper discoveries.

• BHP – Oak Dam West 425.7m @ 3.04% Cu from 1063m including 180m @6.07% Cu.
• RIO - `Winu' Prospect ( Estimates of 150-200mt @ ~1% Cu with high grade gold???)
• NCM  -  EXCO Option Prospect South of Cloncurry 8 x 800m Diamond holes ????

These could have share price impacting outcomes even on these major stocks. 

Within all this DawesPoints is observing that an exploration boom is now developing for copper explorers and developers throughout Australia.

The Patterson Ranges in WA around Telfer will be very important with RIO, FMG and a few small stocks are well placed. 

South Australia will benefit from this Oak Dam West discovery through BHP and from drilling commencing on the Lake Torrens Project for AIS and ARE but also through important geophysical surveys that are utilising the MT method. More on this soon.

Queensland has considerable activity in the Mt Isa Block with Walford Creek (AML) and Cloncurry still providing good results.

Keep watching this activity.

Gold exploration, as noted in DawesPoints #81, hit a new nominal high in annualised expenditure close to A$1000m in the September Qtr 2018.

Exploration in the Yilgarn Block in WA continues to provide new styles of gold mineralisation that shows that even with currently providing almost 60% of Australia's gold the Yilgarn may still be only scratching the surface as drilling goes deeper and new host rocks are found.

The Pilbara Gold Conglomerates are getting more interesting and exciting by the month as the understanding of that mineralisation increases. Expect big things here.

The Pilbara is also getting a raft of new hard rock discoveries as this province has been under explored compared to the Yilgarn. 

Fosterville for KLA has changed the face of gold in Victoria and its 1.16moz @61g/t Swan Zone seems to just get better. CYL is looking for and has indications of another Bendigo but its drilling is also taking into account the technical input from Fosterville.

The Tanami in NT will also provide some excitement. 

Hydrocarbon exploration is also very active and the gas discoveries to meet the policy-driven disasters of gas shortages are there to be developed. 

The outlook then is for equity markets to stabilize, the US economy to continue to grow, Asia to continue to grow and commodities to perform extremely well.

The outlook then is for equity markets to stabilize, the US economy to continue to grow, Asia to continue to grow and commodities to perform extremely well.

Call me to participate.

Barry Dawes  BSc F AusIMM (CP) MSAAFA

Executive Chairman
Martin Place Securities

I own or control in portfolios most of the stocks mentioned in this report. 

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

7 January 2019

Key Points

• ASX Gold stocks leading global reflation
• ASX Gold Index breaks above 5400 and 2011/2016 downtrends
• Newcrest finally joins the party
• Australian Gold Production heading for new annual high >310t
• Australian gold exploration expenditure hits new high
• Gold is breaking out in many currencies
• NCM, NST, KLA, EVN, SBM, RRL, SAR, RSG, OGC, TBR/RND are BUYS
• Numerous small gold companies are seriously mispriced and cheap
• The signs here are strong and we are just waiting for the US
• Outlook good for an excellent 2019 in gold and gold stocks

Best wishes to all readers for a Happy and Prosperous 2019.
Call me to participate bdawes@mpsecurities.com.au +61 2 9222 9111

---

The performance of the Australian Gold Mining Sector has been remarkable since the Dawes Points low of June 2013 and even more impressive since the November 2014 low in the ASX S&P All Ordinaries XGD Gold Index.

The key growth stocks of NST, EVN, SBM, RRL, SAR and TBR/RND have provided outstanding returns and have accurately reflected the Australian Gold Industry and the changes in gold production, resources expansion and cost reductions.

This gold industry growth has provided strong earnings, cash-rich balance sheets and a growing stream of dividends.

Dawes Points considers that the Australian Gold Industry is actually leading the world in mining and exploration activity and in share price action in a major global reflation that will take commodities, and of course resources stocks, to major new highs in a bull market that will run for many years.

The global QE has been unleashed and it is steadily working through the global economy and predates any QT. Inflationary pressures are building. China and India are still growing strongly.

As has been pointed out previously, the ASX XGD Index has failed to truly reflect the success of the Australian gold industry due to the large weighting of Newcrest(38%) in the Index itself and to the inclusion of offshore or irrelevant companies. It has shown no growth since July 2016 despite the great successes of NST, EVN, SBM and RRL.

The XGD has now finally broken both its 2011 downtrend and also the downtrend from the July 2016 high and should now start to motor along strongly in that global leading role.

These two 2005-2018 graphics show the time frames and the significance of these trend breaks.

Do understand the time frames and that the resulting positive moves will be measured in years not months.

Here is XGD ASX Gold Index over 2005-2018.  The 31 Dec 2018 close of 5465 is above the key 5400 resistance.

Newcrest (NCM.ASX) at A$16.7bn market cap and 38% of the XGD is almost 3x the size of the next largest at A$6bn (EVN 14%) so its non-performance since mid 2016 has strongly infuenced the performance of the XGD.

NCM is now joining the party as a rising participant stock and so will have a major impact on the XGD as NCM moves higher. Its weighting in the XGD is also likely to increase. With 2.5mozpa plus 80ktpa copper and a raft of new growth projects NCM is a very different company today compared to 2015.

The XGD is following the A$ Gold Price and the break above A$1,800/oz is very positive. Higher A$ gold prices are likely and hopefully not just because of a lower A$.

On a relative basis ASX gold stocks are still historically cheap against A$ gold and are likely to be rerated from 3.0x the A$ gold price to perhaps 5x.

The XGD Index today is different to 2008 (only 24 vs 52 companies) and the companies are different but the quality is far superior and the PE ratios are far lower.

A rerating would be greatly deserved.

The production growth of the major gold players (21 companies plus NCM ) were highlighted in Dawes Points #80 and the activity within the non-NCM gold industry is likely to be able to maintain that 13%pa CAGR.

The A$ gold price has risen over A$100 since November and that would have added about $A450mpa to pretax earnings to the 21 key companies and about A$250mpa to NCM.  

Australian gold production reached a new annualised high in June Qtr 2018 (adjusted higher on previous published figure) of 324tpa giving a likely 310 tonnes minimum in calendar 2018 and almost 320t for FY19. Kirkland Lake’s Fosterville will be adding another 10 tonnes to Australia’s gold output in FY19. DCN, GCY and GOR will also be adding in FY19 so 320t might be too low.

The exploration spend on gold also reached a new high of A$959m pa in the Sept Qtr so new resources, new deposits and increased gold production will be coming.

All this data indicates the Australian Gold Industry is in excellent shape to provide further outstanding returns to shareholders.

The big stocks are still great BUYs - NCM, NST, KLA, EVN, SBM, RRL, SAR, RSG, OGC and TBR/RND.

Make sure you have some of these stocks in your portfolios.

As noted many times previously, these gold stocks will give better returns than you will get from the banks. Dividends, special dividends and capital returns are coming here too.

Great performances here but why is the overall gold sector performing so poorly?

The 38% weighting of NCM has ensured the XGD has shown no net growth since July 2016 so the Index has provided the marketplace with a clear 'don’t bother, nothing happening here'.

An extraordinary outcome. Massive outperformances from NST, EVN, SBM, RRL.  NCM going nowhere.

And underneath, there are so many small producers and wannabees that have been ignored and represent extraordinary value.

Talk to me about some of them.

GOLD in US$

The main Dawes Points thesis is that China (1400m people) and India (1300m) will continue to grow their economies and that rising middle classes will continue to absorb all the available gold produced in the West.

Gold will become a very tight market.

Gold is still priced in US$ but over time the gold price in Chinese Yuan and Indian Rupees will become more important.

So the current focus is on US$ pricing.

The technical breaks of the 2011 downtrend in gold vary with individual currencies.

Here the US$ gold price had broken its 2011 downtrend in 2017 but has fallen again to test that downtrend and now seems to be moving up to test US$1300-1320.

Attention must be still focussed here.

The downtrend in A$ appears to have been broken as we have seen and maybe also in Canadian $.

Gold has broken the 2011 downtrend in Sterling, Rupees, Sth African Rands and also in Swiss Francs but not yet with the Euro nor the Japanese Yen.

The 2011 downtrend also still exists with Nth American gold stocks.

The 2018 sell off brought the XAU Index back to the levels of 2008 and provided an excellent long term turning point but the 2011 downtrend is still well above the market so the immediacy in this sector is not as strong as in Australia. 

Nevertheless, markets have leaders and Barrick is the market leader in capitalisation and gold production (before and after the Randgold merger).

It is leading the market and is close to breaking its 2011 downtrend.  A weekly close above about US$14 would confirm the break.

The recent sell off in the US markets led by Tech Stocks may be over for now but gold is unlikely to rally strongly just because of stocks falling.

Do note that many non-tech 'value' US stocks were making new highs in late Nov- early Dec 2018 so it certainly wasn’t an end of the world event.

A better indicator of future market action to follow might be silver.

Most small gold and resources stocks have been performing in line with US$ silver.

A pretty miserable sight for the past seven years and for now but just look at the next graphic.

Silver is at extremes against gold and very oversold.

Any snap back could be very powerful.

Could we get this happening and also spilling over to ASX small gold stocks?

Gold is the leader in all this so upward resolution to this 7 year downtrend will have immediate impact on gold stocks but it will also attract major new investment into resource stocks and commodities.

BHP, RIO and S32 are standouts but so many opportunities will be presented.

And I do particularly like copper.

Call me to participate

Barry Dawes  BSc F AusIMM (CP) MSAAFA
Executive Chairman
Martin Place Securities

I hold or manage in portfolios most of the stocks mentioned here.

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

2 January 2019