Australian Gold Stock Update
By Neil Charnock
The gold bull is just taking a giant breather during a very long bull market, which is the good news. To prove this correction is now a ‘bear’ market, gold would have to trade under the 2008 low and I strongly suggest this is unlikely. With the first gold leg running up for 12 years straight a proportional correction was inevitable but the main event is yet to come. On an inflation adjusted basis gold has so far failed to make new highs as compared to the 1980 peak. The bad news is that global economic headwinds have us on a course for a financial and social upheaval. The “group think” on this so called economic recovery is deeply flawed.
When you break down the calculation process for GDP this becomes clear. Strong multi decade growth, that was increasingly debt driven mainly by public and corporate sectors, was replaced by government and central bank intervention after late 2008. The system is addicted to this stimulus which still takes many forms and which also left greater risk in its path. Statistics and balance sheets can only be made to lie for so long. Reality will bite in the end as this silly shell game of distraction, denial and dysfunction ends.
The Golden Cross
Have you heard of OBV? It means On Balance Volume and is used to detect momentum showing selling or buying on balance. I highlight “on balance” because fundamentals do not work in isolation as is continually proved by the market. The same goes for technical indicators for they too cannot work in isolation. I noticed some commentators using the golden cross for promotion recently but this is what I had to say to my Members at the time. In my Live Commentary area I stated:
24th March 9:45am all but the golden cross formation is negative on the daily chart. Sell divergence, MACD, DMI, money flow – you name it all negative and the daily chart is senior to the intra-day charts. Therefore any bounce we see in the intraday charts will be a temporary opportunity only, until we get to the low in this correction.
My long term model is never exact in the short term but it does show potential for a fall on gold to new lows. It has broadly predicted the movement of gold for almost 12 months so we do have to keep an eye on this.
The XGD hit a high of 2441.5 that morning after my comments, then reversed and proceeded to fall to 2120.9 a few days later by the 28th March. On balance analysis should be a part of quality commentary as serious investors expect it. In mid-February I started warning clients that the XGD rally was “maturing” and at the time I listed my reasons for the comment. I try to provide general guidance ahead of events so as to allow clients to adjust their portfolios according to their own individual criteria. I would like to offer a heads up to readers on this web site today.
The following comments refer to two aspects of the current climate for gold stocks in Australia. First some background in brief. In January 2014 I released a rare article titled “2013 Results and 2014 Outlook”. I say rare because I work almost exclusively for my clients and my own successful book these days. In that last public article I made mention of a model on gold developed during April 2013 which has been startlingly accurate ever since. As I have come to understand the model better it has been more reliable as a general guide. The secret always relates to application not just theory. Accuracy of application comes with experience only.
I am not publicly divulging this model as this would violate the rights of my Members. However I can say that the failure of the last gold rally at nearly $1400 was predicted recently from that model, as was the spike up to that level. One purpose of this article is to offer a heads up that the model now indicates we are headed for new lows on the USD price of gold this year. My next target to horizontal supports off the 2008 high at US$1030 has come into play at this time. We will see a test at the lows of 1180 as well. My last target from April 2013 was US$1170 which was missed, only just.
Now to the second aspect of this heads up: Short term we are just bouncing back up after that fall which sent the XGD tumbling over 600 points straight down. As I keep stating to my clients nothing goes straight up or straight down. A fortune can be made reading the “noise” as the uninitiated call it. They call it noise I call it “opportunity” in the short term.
Gold may have downside this year and yet the Australian gold sector offers incredible opportunity. I am not crying wolf here either. I did not continually talk my book all the way through last year and am not about to start now. I did state various things in the January article, printing them after they had been with clients for a few weeks and about the 1700 low on the XGD. My thesis for coming back to publicly released coverage was based on opportunity for all investors, clients or not. My key comment back in January was “The opportunity lies during this consolidation phase and on the ultimate lows as the leverage potential is a once in a lifetime opportunity for gold stocks.”
The thesis is that gold stocks are in the bottom range now and very cheap. Rallies as we have just seen were predicted at GoldOz with larger bounces of the gold price. These rallies offer 30% to 100% capital gains on individual companies in short periods of time which, if captured can be used to build wealth or rebuild battered portfolios.
The objective is to head into the final lows with a stronger cash balance where we will be able to leverage off that point for highly significant gains. The modelling and unique GoldOz short term systems have the capacity to guide investors through this process for optimum gains. The low range is likely to last some time and will be and has been already highly profitable due to the leverage of such low prices. Modest recoveries are producing stunning gains.
Good trading / investing.
GoldOz offers major points of difference to many services. We offer education for all levels of investors including a Newsletter, gold stock comparison tool, an educational portfolio and a running commentary on the gold sector. We have expertise in debt markets and gold equities which gives us a strong edge as independent analysts and market commentators. GoldOz also has free access area on the history of gold, links to Australian gold stocks and miners plus many other resources.
Neil Charnock is not a registered investment advisor. He is an experienced private investor who, in addition to his essay publication offerings, has links to highly experienced experts across finance fields who assist in the analysis and research of our information services. The opinions and statements made in the above publication are the result of extensive research and are believed to be accurate and from reliable sources. The contents are his current opinion only, further more conditions may cause these opinions to change without notice. The insights herein published are made solely for international and educational purposes. The contents in this publication are not to be construed as solicitation or recommendation to be used for formulation of investment decisions in any type of market whatsoever. WARNING share market investment or speculation is a high risk activity. Investors enter such activity at their own risk and must conduct their own due diligence to research and verify all aspects of any investment decision, if necessary seeking competent professional assistance.