Best of the Week
Most Popular
1. Stock Markets and the History Chart of the End of the World (With Presidential Cycles) - 28th Aug 20
2.Google, Apple, Amazon, Facebook... AI Tech Stocks Buying Levels and Valuations Q3 2020 - 31st Aug 20
3.The Inflation Mega-trend is Going Hyper! - 11th Sep 20
4.Is this the End of Capitalism? - 13th Sep 20
5.What's Driving Gold, Silver and What's Next? - 3rd Sep 20
6.QE4EVER! - 9th Sep 20
7.Gold Price Trend Forecast Analysis - Part1 - 7th Sep 20
8.The Fed May “Cause” The Next Stock Market Crash - 3rd Sep 20
9.Bitcoin Price Crash - You Will be Suprised What Happens Next - 7th Sep 20
10.NVIDIA Stock Price Soars on RTX 3000 Cornering the GPU Market for next 2 years! - 3rd Sep 20
Last 7 days
Key Time For Stock Markets: Bears Step Up or V-Shaped Bounce - 24th Sep 20
Five ways to recover the day after a good workout - 24th Sep 20
Global Stock Markets Break Hard To The Downside – Watch Support Levels - 23rd Sep 20
Beware of These Faulty “Inflation Protected” Investments - 23rd Sep 20
What’s Behind Dollar USDX Breakout? - 23rd Sep 20
Still More Room To Stock Market Downside In The Coming Weeks - 23rd Sep 20
Platinum And Palladium Set To Surge As Gold Breaks Higher - 23rd Sep 20
Key Gold Ratios to Other Markets - 23rd Sep 20
Watch Before Upgrading / Buying RTX 3000, RDNA2 - CPU vs GPU Bottlenecks - 23rd Sep 20
Online Elliott Wave Markets Trading Course Worth $129 for FREE! - 22nd Sep 20
Gold Price Overboughtness Risk - 22nd Sep 20
Central Banking Cartel Promises ZIRP Until at Least 2023 - 22nd Sep 20
Stock Market Correction Approaching Initial Objective - 22nd Sep 20
Silver Bulls Will Be Handsomely Rewarded - 21st Sep 20
Fed Will Not Hike Rates For Years. Gold Should Like It - 21st Sep 20
US Financial Market Forecasts and Elliott Wave Analysis Resources - 21st Sep 20
How to Avoid Currency Exchange Risk during COVID - 21st Sep 20
Crude Oil – A Slight Move Higher Has Not Reversed The Bearish Trend - 20th Sep 20
Do This Instead Of Trying To Find The “Next Amazon” - 20th Sep 20
5 Significant Benefits of the MT4 Trading Platform for Forex Traders - 20th Sep 20
A Warning of Economic Collapse - 20th Sep 20
The Connection Between Stocks and the Economy is not What Most Investors Think - 19th Sep 20
A Virus So Deadly, The Government Has to Test You to See If You Have It - 19th Sep 20
Will Lagarde and Mnuchin Push Gold Higher? - 19th Sep 20
RTX 3080 Mania, Ebay Scalpers Crazy Prices £62,000 Trollers Insane Bids for a £649 GPU! - 19th Sep 20
A Greater Economic Depression For The 21st Century - 19th Sep 20
The United Floor in Stocks - 19th Sep 20
Mobile Gaming Market Trends And The Expected Future Developments - 19th Sep 20
The S&P 500 appears ready to correct, and that is a good thing - 18th Sep 20
It’s Go Time for Gold Price! Next Stop $2,250 - 18th Sep 20
Forget AMD RDNA2 and Buy Nvidia RTX 3080 FE GPU's NOW Before Price - 18th Sep 20
Best Back to School / University Black Face Masks Quick and Easy from Amazon - 18th Sep 20
3 Types of Loans to Buy an Existing Business - 18th Sep 20
How to tell Budgie Gender, Male or Female Sex for Young and Mature Parakeets - 18th Sep 20
Fasten Your Seatbelts Stock Market Make Or Break – Big Trends Ahead - 17th Sep 20
Peak Financialism And Post-Capitalist Economics - 17th Sep 20
Challenges of Working from Home - 17th Sep 20
Sheffield Heading for Coronavirus Lockdown as Covid Deaths Pass 432 - 17th Sep 20
What Does this Valuable Gold Miners Indicator Say Now? - 16th Sep 20
President Trump and Crimes Against Humanity - 16th Sep 20
Slow Economic Recovery from CoronaVirus Unlikely to Impede Strong Demand for Metals - 16th Sep 20
Why the Knives Are Out for Trump’s Fed Critic Judy Shelton - 16th Sep 20
Operation Moonshot: Get Ready for Millions of New COVAIDS Positives in the UK! - 16th Sep 20
Stock Market Approaching Correction Objective - 15th Sep 20
Look at This Big Reminder of Dot.com Stock Market Mania - 15th Sep 20
Three Key Principles for Successful Disruption Investors - 15th Sep 20
Billionaire Hedge Fund Manager Warns of 10% Inflation - 15th Sep 20
Gold Price Reaches $2,000 Amid Dollar Depreciation - 15th Sep 20
GLD, IAU Big Gold ETF Buying MIA - 14th Sep 20
Why Bill Gates Is Betting Millions on Synthetic Biology - 14th Sep 20
Stock Market SPY Expectations For The Rest Of September - 14th Sep 20
Gold Price Gann Angle Update - 14th Sep 20
Stock Market Recovery from the Sharp Correction Goes On - 14th Sep 20
Is this the End of Capitalism? - 13th Sep 20
The Silver Big Prize - 13th Sep 20
U.S. Shares Plunged. Is Gold Next? - 13th Sep 20
Why Are 7,500 Oil Barrels Floating on this London Lake? - 13th Sep 20
Sheffield 432 Covid-19 Deaths, Last City Centre Shop Before Next Lockdown - 13th Sep 20
Biden or Trump Will Keep The Money Spigots Open - 13th Sep 20
Gold And Silver Up, Down, Sideways, Up - 13th Sep 20

Market Oracle FREE Newsletter

How to Get Rich Investing in Stocks by Riding the Electron Wave

Gold Stocks Oversold

Commodities / Gold & Silver Stocks Feb 02, 2010 - 07:17 AM GMT

By: Neil_Charnock

Commodities

Best Financial Markets Analysis ArticleA piece of news I expected is now out – an Obama plan to spend more money on stimulus.  I have stated this would happen in the past weeks.  Will it get passed or not is the question?  There will be a battle and the proposals may get changed around however there is one thing for certain the Government will spend.  I discussed this with a colleague a few weeks back and we agreed there was no way any government in an election mode would withdraw stimulus.


The USA will not be the last as governments struggle to increase employment, growth and popularity during the course of this year.

This fact alone will give some hope to markets and fund activity will also spur a new wave of buying.  This article was largely written yesterday and posted for my Gold Members early this morning so the charts later in this article on the Australian gold shares are timed well.  As I finish off this article now the XGD is up 3.75% today in Australia well above the 1.85% rise in the XAO.

Markets have been driven lower lately largely on Fed mopping up of liquidity, tight credit plus short term news items over the past few weeks.  China is a run away train once again and they had to step on the brakes.  Increased reserve requirements and a cooing is good for long term growth and sustainability however it was seen as bearish at this time.  I am pleased to see the restraint and always interested to see the reaction in the media and the markets.

The Fed had to mop up after backing inter-bank lending in the heat of the 2008 crisis however it my hope and belief that they will do this in stages.  They have no choice but to mop up and probably no choice but to stage this process. 

The banks in the US have to split, demerge into smaller separate corporate entities to limit the repercussions of future failures.  What does that say?  Once again some short term uncertainty and confusion plus the timing problem and it becomes a negative.  Longer term this story will morph into a done deal and the cards will fall where they can be properly assessed.  This is a step that is needed in the banking system and will eventually become seen as a positive.

So they demerge and the money still gets invested by the new entities and the show goes on in the finance area at least.  Money will be generated in the process for those involved.  Mr. Bernanke was reelected as expected removing this perceived negative in the markets but last week it was a negative. 

The Dow hit heavy resistance at tops back in March 2002, February 2004, January to March 2005 and a low in July 2008.  So it topped for now at 10,700 and then fell over 6%, these are scary numbers – the 10,000 level looms below.  Between here and 9650 there are numerous long and short term support levels and these should hold if my current theory is correct.

The Australian stock market (XAO) had fallen by over 7.8% to 4600 reaching some strong support in the 4400 to 4600 range as of yesterday.

The real reasons for the next major fall in the markets are still some way off and this is all related to the debt cycle but these will emerge more strongly this year as sovereign credit down grades force rates higher.  The Greek Government is now borrowing at 14% at present and this is the future for Japan, the USA and some other nations.  It may be some time off and many will be wondering what I am smoking to suggest such a thing however I am quietly confident about this theory. 

The problem is that if or when rates go up anywhere near this amount asset prices will have to fall.  Loans will default and properties will change hands.  New losses will have to be written off in the banking sector and business will have to down size its debt or face the consequences.  Equity analysts will increasingly have to factor debt with a greater weighting as we move forward.

Current Direction

There is still ample liquidity on the sidelines and in the system despite the tight credit conditions.  The liquidity has been created in the last two years and much of it is currently being hoarded by the banks. 

I was told last night that the US Banks are carving up the spoils of the banks that are declared insolvent each Friday so the solvent ones are sitting on capital to qualify for the feast - and therefore they are not lending.

Funds that closed their books early for the year in November and December last year would have been the buyers over the past few weeks.  Somebody had to buy all that paper (shares) didn’t they?  These funds turned bearish after selling down to maximise their cash ratios late last year and will soon come out with some positive comments on a fresh round of statistics. 

This is a curious thing to watch.  Not only do we see a change in sentiment amongst investors including funds, from greed to fear we also see a corresponding swing in sentiment in the media from bearish to bullish.  Bullish in this investment climate can mean news that is not as bad as what was expected and this can lead to a reduction in stress and fear resulting in buying activity.

Australian Gold Shares

The Reserve Bank just decided to hold rates at 3.75% here in Australia today which is great for our gold sector.  The AUD gold price is up $10 to $1252 on a 1c drop in the AUD.  My view yesterday on where our gold sector is set out below – this is an update paragraph to bring this article into current time.

Even if you are not a trader it is useful to utilise short term trading sell points to lighten or exit portfolio positions in anticipation of lower prices.   I have practiced a strategy of selling short term (intermediate tops) and holding that cash to pick up the same parcel and additional shares in key stocks with the proceeds of the sale. 

A simple example of this; imagine selling off a stock you have been holding and buying them back at half price.  You would theoretically be able to buy back twice the number of shares and this also creates fantastic leverage in your investment account.

A report was posted in the Gold Members area on the Australian gold sector XGD on the 21st of January warning that the support level shown must hold – implying that bets are off for now if we penetrate below.  Here is the chart shown at that time.

This support level created a very short term bounce however it did not hold and this should have triggered an exit or partial exit decision for gold stock investors that agreed with this analysis.  We always suggest that investors seek the advice of professional investment advisers and base their decision on their own decisions which is the only way to learn to be successful in the markets.

Since then the picture has weakened further due to all sorts of news as covered above.  This is also pushing up the USD which is benefiting from a distressed Euro also pushing gold lower in the short term.  That reversed slightly last night however the yellow metal of kings outperformed by a wide margin.

I followed up with an additional article for the general public Monday last week that showed this chart below and longer term support levels.  Note the bottom red line support level I drew in on the chart below – this held and we bounced from here today 2nd February 2010 which is a positive for the Australian gold stocks here at this point. 

We successfully faced a test of the lower supports shown at around 5100 on the XGD so I went looking at the daily charts of the major components of this index namely Newcrest Mining (ASX-NCM) and Lihir Gold (ASX-LGL). 

NCM just registered an RSI reading of 24.03 which was deeply oversold on the daily chart.  LGL just posted an RSI reading of 21.018 which was lower than the turning point and low of 20th August 2009 when it reached a low of 23.228 at a close of $2.44.  This may be pointing to the turning point for this index at this time in the short term however we must get confirmation in the market to adopt this as part of any trading or investment strategy.

Thanks to a rapidly falling AUD the gold price here has held at over AUD$1200 which is a highly profitable level for gold producers.  This seems to have nothing to do with the considerations of investors and funds that needed cash fast and I have seen some highly irrational selling of late.  This again highlights the fact that investors will ignore the fundamentals of a stock in the face of tightened liquidity.

The banks are not lending for new projects at present.  I have been warning that if companies are on the “b” list they will not be successful in rolling over their loans.  Distressed asset sales will gradually increase over the coming years and these types of pull backs in the stock market will be exacerbated by this phenomena.

Last week I saw a stock that announced confirmation of the most significant gas find in NSW in over 100 years get sold off.  Another stock that I had featured in a Due Diligence Report was sold back even on news of a significant new proposed project and partnership.  This again lays down further potential with another foundation going into place to support future growth in that company.

Logic flies out the door when cash is needed because the distressed investor will sell onto any bid.  This is often compounded by the inexperienced because they incorrectly assume there is a valid reason for the stock to sell off.  Other investors sell when the “pain” becomes too great and manage to pick the bottom with the wrong strategy.  This total effect creates opportunity for the astute investor who buys the fear and sells excitement.

Let me state this for the record again; the fundamentals for the gold producers that have a strong balance sheet have not changed.  This is the time to take more notice of this sector not less as such our current news upgrade and resultant assessments should be of great interest.

GoldOz Gold Membership is on sale with a discount and bonus time due to the release of our latest special Due Diligence Report.  This is only valid until mid February when prices will return to normal ahead of more improvements at GoldOz.  Many thanks for all the feedback on the UCG report we are working towards some special gold reports and news / file updates now.  Public release of the next Due Diligence report will be delayed an additional two weeks

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

© 2005-2019 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in

6 Critical Money Making Rules