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Gold, Silver and Financial Markets Outlook for 2010

Commodities / Gold and Silver 2010 Jan 05, 2010 - 04:53 AM GMT

By: Neil_Charnock

Commodities

Best Financial Markets Analysis ArticleWelcome to 2010 and a happy New Year to all from the GoldOz team.  I have been looking at the trends, contemplating chart technicals and talking to some equity & finance analysts.  This year will initially see a continuation of the trends established in 2009.  I understand that this seems like a bland statement.  The stock market reads future trends and outcomes at times and has factored (government sponsored) growth this year.  Thanks to the vast overflow and after effect of the stimulus capital flows this will come to pass initially and therefore I consider that the highest probability is that the stock market rally will continue in the first half.


This will be assisted by large scale willing market players who need to re-build.  Their profit taking at the end of 2009 now leaves them with capital to re-invest and with bonds seemingly set to fall and real estate sick where do you think they will go?

The big concern however is that the Fed and “Household” sectors bought $1.2Trillion+ in treasuries last year.  This debt finance game clearly cannot continue indefinitely so interest rates will have to rise in the months ahead constraining the longer term growth outlook.  This may raise its ugly head as a major concern sometime in the second half.  The interest rate factor could drive another modest short-term up-leg in the USD. 

This “recovery” also has the problem of growing unemployment putting pressure on the housing sector and tax receipts - with obvious negative connotations.  Given the abnormal level of complexities at hand I will not attempt to call H2 of 2010 however I do believe we have a high chance of a reversal in the H1 uptrend out there in that time frame.

As I am primarily a gold analyst l should start with gold so here is a chart and my thoughts in the near term to start with.

Gold is still following the fractal pattern as observed over the past several years as shown above.  I have drawn in some resistance / support lines and circled the relevant RSI tops to show that all is in order in the big picture.  I see no reason to expect any significant deviation from this trend at this stage – this is an orderly uptrend which is headed for approximately $1,400 by May this year.  The Aussie gold stocks are headed along for the ride.

The three gold stock index charts we run on GoldOz (with cooperation from Nick at Sharelynx) all show consolidation or reversal after a short year end correction which I warned about from mid November.  The large producers and junior explorers appear to have reversed and the emerging producers have consolidated ahead of a reversal in the AUD gold price which is ready to head back up - sitting at $1,228 as I write this article.

The XGD index quoted by the ASX is weighted and therefore dominated by NCM and LGL.  It shows a channel constrained uptrend since recent support at 4500 (channel lines not shown the patter is obvious).  I have included this longer term chart that I posted in the GoldOz Gold Members area on the 18th December showing and declaring the bottom of that gold stock correction.  This low has held so far at 5605 reversing to 5649 that day - and is now back up to 6053 on the close today.  Here is the chart from the 18th December as posted at GoldOz only - it is useful to show the progress of the Aussie gold stock sector at least on a weighted basis.

We expect a top in April or May this year in this sector and will keep Members informed first in addition to these articles for the general public.  The stocks make their highs at different times so therefore this should be interpreted as a general guide for the index.

It is usually the stronger performers that surge right into the final stages of a gold rally and we expect the normal pattern of out-performance of gold itself over the stocks in the final stages of the rally.

General Markets

The theme again this year will be continued stimulus programs and perhaps with some shift to tax cuts in addition to further bail outs.  Some further fall out from the credit crisis will continue with corporate failures and potentially necessitating new funding where it is deemed appropriate.  Please excuse the cynicism but numerous elections will keep the global funds flowing as the incumbent seek re-election.

In the US they have no choice but to continue with stimulus policy and have recently announced that Fannie and Freddie now have their $200B bail out limit extended.  Mortgages of $1M and over now face a default level of 12% so there is still downward pressure on real estate. 

On Glen Beck’s show in the US in late December; he pointed out that of the Obama administration cabinet appointees only 2% had private sector experience.  You could say that this does not bode well for fiscal restraint.  Mid to longer-term growth and therefore employment will remain constrained by tight credit conditions and other pressures such as energy costs.
The Euro zone, UK, Japan and the USA will struggle to post meaningful growth figures this year and over coming years.  China is still a risk however it is still growing for now and so are India, Russia, Brazil and raw material supply countries such as Australia. 

Australian real estate is still soft at the top end and in many holiday destinations where sales remain weak.  The bottom end has been strongly supported by first home owner stimulus packages which has in turn supported growth in mid range property sales.  Rising interest rates should ease this bubble and this has the potential to cause a housing price pull back toward affordability.  If we get a meaningful fall in house prices here it will eventually force banks to reduce their underwater loan exposure but this is not looking likely this year.

Deeper problems in the Euro zone have finally risen to the surface overshadowing the US for now so the Euro currency is currently on the nose with investors.  I will be watching for a trend reversal in the coming weeks or months however as both economies have deep structural difficulties.

The difficulty for currency investors is to find a safe currency which is another reason why gold is continuing to benefit as a reserve currency.  This will drive the price to new record highs in the coming month or two on the way to the forecast mentioned above. 

In my opinion the big winners for the first half will be a number of equity sectors because the funds and institutions will still have to play supported by the banks via their investment activities and margin loans.

I like electricity, gas and energy, gold and silver, food and fertilizer, some retail, also with some strength in bulks and base metals.  I am preparing an educational piece to follow up on last years success with a local gold miner that increased by over 150% after publishing in late August.  This will feature an energy play that is highly undervalued and I also expect major gains this year in this stock.

World First

As a closing comment I would like to mention a revolutionary smelting & refining process that can handle complex ores extracting the metals with ZERO EMISSIONS.  Think what this could do for the health of mining communities and how much environmental benefit this could bring.  Think how much mining companies could save in rehabilitation costs.  This is a world first but Royal Silver Company who has started off by choosing silver first was not just content with that – they have just announced the worlds first 99.999% pure silver one ounce coins and I want to congratulate them for this Dual World First feat.  These are the highest purity coins on the planet and are produced in limited numbers using their zero emissions technology.

Royal Silver will be advertising on GoldOz shortly and they will sell their coins around the world featuring the Andean Cat which is an endangered animal.  They will also donate a portion of their coin sale profits to a foundation that is working to conserve the Andean Cat – it is believed that there may be as few as 2000 remaining in South America.  I believe they are already taking orders for these coins now so heads up everybody.

If you want to stay informed and get educated on the Australian gold sector and all things important in the world of gold Down Under then you might consider subscribing to our Members or even better our Gold Members subscription area at GoldOz.  We wish you all a happy, healthy and profitable New Year for 2010.

Good trading / investing.
Regards,
Neil Charnock

www.goldoz.com.au

GoldOz is currently developing a Member area and has added further resources for free access. We have stepped up our research and stand by to assist investors from all walks of life. We sell an updating PDF service on ASX gold stocks from only $AUD35 for 3 months – the feedback is grateful and enthusiastic because we are highlighting companies that have growth potential and offering professional coverage of the sector. GoldOz web site is a growing dynamic resource for investors interested in PGE, silver and gold companies listed in Australia , brokers, bullion dealers and other services.

Neil Charnock is not a registered investment advisor. He is a private investor who, in addition to his essay publication offerings, has now assembled a highly experienced panel to assist in the presentation of various research 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.

Neil Charnock Archive

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