Best of the Week
Most Popular
1. Investing in a Bubble Mania Stock Market Trending Towards Financial Crisis 2.0 CRASH! - 9th Sep 21
2.Tech Stocks Bubble Valuations 2000 vs 2021 - 25th Sep 21
3.Stock Market FOMO Going into Crash Season - 8th Oct 21
4.Stock Market FOMO Hits September Brick Wall - Evergrande China's Lehman's Moment - 22nd Sep 21
5.Crypto Bubble BURSTS! BTC, ETH, XRP CRASH! NiceHash Seizes Funds on Account Halting ALL Withdrawals! - 19th May 21
6.How to Protect Your Self From a Stock Market CRASH / Bear Market? - 14th Oct 21
7.AI Stocks Portfolio Buying and Selling Levels Going Into Market Correction - 11th Oct 21
8.Why Silver Price Could Crash by 20%! - 5th Oct 21
9.Powell: Inflation Might Not Be Transitory, After All - 3rd Oct 21
10.Global Stock Markets Topped 60 Days Before the US Stocks Peaked - 23rd Sep 21
Last 7 days
Stock Maket Trading Lesson - How to REALLY Trade Markets - 26th Nov 21
SILVER Price Trend Analysis - 26th Nov 21
Federal Reserve Asks Americans to Eat Soy “Meat” for Thanksgiving - 26th Nov 21
Is the S&P 500 Topping or Just Consolidating? - 26th Nov 21
Is a Bigger Drop in Gold Price Just Around the Corner? - 26th Nov 21
Financial Stocks ETF Sector XLF Pullback Sets Up A New $43.60 Upside Target - 26th Nov 21
A Couple of Things to Think About Before Buying Shares - 25th Nov 21
UK Best Fixed Rate Tariff Deal is to NOT FIX Gas and Electric Energy Tariffs During Winter 2021-22 - 25th Nov 21
Stock Market Begins it's Year End Seasonal Santa Rally - 24th Nov 21
How Silver Can Conquer $50+ in 2022 - 24th Nov 21
Stock Market Betting on Hawkish Fed - 24th Nov 21
Stock Market Elliott Wave Trend Forecast - 24th Nov 21
Your once-a-year All-Access Financial Markets Analysis Pass - 24th Nov 21
Did Zillow’s $300 million flop prove me wrong? - 24th Nov 21
Now Malaysian Drivers Renew Their Kurnia Car Insurance Online With Fincrew.my - 24th Nov 21
Gold / Silver Ratio - 23rd Nov 21
Stock Market Sentiment Speaks: Can We Get To 5500SPX In 2022? But 4440SPX Comes First - 23rd Nov 21
A Month-to-month breakdown of how Much Money Individuals are Spending on Stocks - 23rd Nov 21
S&P 500: Rallying Tech Stocks vs. Plummeting Oil Stocks - 23rd Nov 21
Like the Latest Bond Flick, the US Dollar Has No Time to Die - 23rd Nov 21
Why BITCOIN NEW ALL TIME HIGH Changes EVERYTHING! - 22nd Nov 21
Cannabis ETF MJ Basing & Volatility Patterns - 22nd Nov 21
The Most Important Lesson Learned from this COVID Pandemic - 22nd Nov 21
Dow Stock Market Trend Analysis - 22nd Nov 21
UK Covid-19 Booster Jabs Moderna, Pfizer Are They Worth the Risk of Side effects, Illness? - 22nd Nov 21
US Dollar vs Yields vs Stock Market Trends - 20th Nov 21
Inflation Risk: Milton Friedman Would Buy Gold Right Now - 20th Nov 21
How to Determine if It’s Time for You to Outsource Your Packaging Requirements to a Contract Packer - 20th Nov 21
2 easy ways to play Facebook’s Metaverse Spending Spree - 20th Nov 21
Stock Market Margin Debt WARNING! - 19th Nov 21
Gold Mid-Tier Stocks Q3’21 Fundamentals - 19th Nov 21
Protect Your Wealth From PERMANENT Transitory Inflation - 19th Nov 21
Investors Expect High Inflation. Golden Inquisition Ahead? - 19th Nov 21
Will the Senate Confirm a Marxist to Oversee the U.S. Currency System? - 19th Nov 21
When Even Stock Market Bears Act Bullishly (What It May Mean) - 19th Nov 21
Chinese People do NOT Eat Dogs Newspeak - 18th Nov 21
CHINOBLE! Evergrande Reality Exposes China Fiction! - 18th Nov 21
Kondratieff Full-Season Stock Market Sector Rotation - 18th Nov 21
What Stock Market Trends Will Drive Through To 2022? - 18th Nov 21
How to Jump Start Your Motherboard Without a Power Button With Just a Screwdriver - 18th Nov 21
Bitcoin & Ethereum 2021 Trend - 18th Nov 21
FREE TRADE How to Get 2 FREE SHARES Fractional Investing Platform and ISA Specs - 18th Nov 21
Inflation Ain’t Transitory – But the Fed’s Credibility Is - 18th Nov 21
The real reason Facebook just went “all in” on the metaverse - 18th Nov 21
Biden Signs a Bill to Revive Infrastructure… and Gold! - 18th Nov 21
Silver vs US Dollar - 17th Nov 21
Silver Supply and Demand Balance - 17th Nov 21
Sentiment Speaks: This Stock Market Makes Absolutely No Sense - 17th Nov 21
Biden Spending to Build Back Stagflation - 17th Nov 21
Meshing Cryptocurrency Wealth Generation With Global Fiat Money Demise - 17th Nov 21
Dow Stock Market Trend Forecast Into Mid 2022 - 16th Nov 21
Stock Market Minor Cycle Correcting - 16th Nov 21
The INFLATION MEGA-TREND - Ripples of Deflation on an Ocean of Inflation! - 16th Nov 21

Market Oracle FREE Newsletter

How to Protect your Wealth by Investing in AI Tech Stocks

Australian Gold Stocks Sector Dynamics

Commodities / Gold & Silver Stocks Mar 14, 2011 - 05:20 AM GMT

By: Neil_Charnock

Commodities

Best Financial Markets Analysis ArticleAustralian gold stocks do not generally move up or down as a group in sequence.  This presents both opportunity and an additional challenge for investors in this sector.  To further complicate this dynamic the price of gold does not necessarily dictate the short term price movements in gold stocks.  At times gold leads the stocks up and down - gold stocks can also lead the way.


The great news is that there are always attractive gold stock investments in motion that are capable of generating capital growth.  Before I look at some of the key drivers I suggest that all investors need to be aware of monetary history and long term cycle waves.  Anybody that bases their investment decisions on minor pull backs since 1930 is going to come unstuck.  Forget about; 1974, 1982, 1987, 1992, the Asian crisis, 2000, the 2008 crisis or any other minor (?) hiccup since 1930 as you formulate your investment strategy for the next ten or even twenty years. 

This is a long cycle wave, a multigenerational change.  This is a debt bubble twice the magnitude of 1930.  Without this key factor plugged into your investment models you cannot get an appropriate investment strategy.   I guess I am mostly ‘preaching’ to the converted, those willing to look at the situation and or fortunate enough to listen. 

Many will not look until it hits them square on and then they will claim they did not see it coming – which will be sad but true.   This crisis has been unfolding over the past ten years and has not been resolved as this second group have been told.  The fundamental flaws are still there, even if time has been bought, the debt bubble is even larger now.  The problems are obvious to trained observers however, thanks to masterful spin, smoke and mirrors the general public still has no real idea about the magnitude of what we face.  As a result they take risks with asset classes they assume are safe and sound.  Many wrong assumptions are being made based on the minor pull backs over the past 80 years.

To briefly illustrate my point consider the bond markets.  We have recently seen rising yields (interest rates) because of increased risk and due to major bond funds are withdrawing from the markets due to risk (e.g. Pimco).  Bond investors are demanding higher returns; yields are not rising due to bullish economic conditions.  The European Central Bank (ECB) is currently the buyer of last resort providing a secondary market for sovereign bonds that might not otherwise be bought at all.  In other words many bond funds and bond investors would not buy this debt at auction if the ECB were not providing a guaranteed exit for this high yield investment class.

Euro nations created the European Financial Stability Facility (EFSF) on the 9th May 2010 for three years in response to crisis in Greece and Ireland.  The facility became fully operational on August 4th 2010. The ECB were hoping the EFSF would step up and agree to assist with secondary market bond purchases at a meeting on Friday and were disappointed.  This is not a good sign or indicator of things to come.   Are these sovereign states closer to default now or has the threat receded?  If you look to the news you will discover that nothing has changed except time itself.  The problem has not gone away.  In the event of a sovereign default gold will go through the roof.

Massive Central Bank bailouts and “unusual measures” are in place to prolong the inevitable so that time can be bought.  This is still a banking problem.  The strong are positioning themselves and the authorities are desperately trying to put some measures in place to rectify the situation.  Default and restructure are inevitable – gold is going to go through the roof and we will see a massive gold stock rally as earnings soar in the sector.

The social and economic shock waves are already beginning; ignore them at your own peril.  Unfortunately most people also underestimate contagion across economic regions and asset classes.  This is understandable because we have not seen economic conditions like this in nearly 100 years.  Interest rates have to rise and asset prices have to fall.  This is the new normal; poor economic growth, upheaval, regulatory restructure and debt default - followed by a long economic rebuild.

So why gold?  Never before has the financial sector taken such a disproportionate share of total business activity.  Complex financial instruments and games have put the real economy at great risk.  The real economy encompasses supply and demand of goods and services, manufacture of goods and supply of services, both to match consumption.  The financial sector and money itself were originally intended and designed to facilitate trade and commerce.  It was never supposed to be a means to itself to this degree.  Yet this has gone on long enough for the average person to consider it all normal.  The driver of this obscene and dangerous game was debt.  Debt and the financial system got out of control, they are bubbles and you know how bubbles end don’t you?

As this monolith implodes and unwinds asset prices will fall, fortunes will be made and lost, interest rates will rise and most people will suffer. 

This change is actually, already an established trend where the shocks come in waves.  They are causing gold and silver to rise and rise.  This is not over by a long shot it is just getting started.  These issues I write about here are the macroeconomic drivers of the gold bull market and ultimately gold stocks.  All the authorities can really do is to rearrange the deck chairs on the Titanic.  On the other side of this period in history we will find a greater equilibrium across the global economic system.  Now the trick is to protect yourself through the transition phase, hopefully to benefit.

The key price driver for share price upside is liquidity.  This liquidity is money flow directed at any given company or sector.  It is about buying pressure which overwhelms sellers forcing the share price higher.  Buyers need a reason to abandon their natural conservatism and commit funds to any investment.  Once they realize gold, silver and gold stocks are one of the few safe havens left they will jump aboard.

Many will jump to cash and lose money gradually as inflation eats away at real returns.  Inflation will remain higher than interest rates offered by banks, perhaps throughout the whole crisis because they are rebuilding their balance sheets. 

Many favourite asset classes over the past decades will decline – those that depend on credit for purchase in particular.  Investors don’t weight credit supply in their over simplified shorter term views on real estate for example.  You can have all the demand you want but if the banks are overweight domestic property loans and risk is increased due to softer economic conditions, along with a rising cost of capital you soon see property prices cannot remain high. This is simply because borrowers that qualify are fewer and the amount they can borrow is reduced. So they have to pay less.

The situations I describe in the bond market are dire.  We face a long term upward trend in interest rates so investors will continue to exit as best they can.  The money has to be invested elsewhere but the question is where do they go?  We cover this in depth in the GoldOz newsletters.  Sovereign defaults and corporate bankruptcies will cause continued fear and currency instability.  This is one of the reasons the Central Banks have become net buyers after many years on the opposite side of the ledger.  The outlook for gold is changing across the savvy end of the investment spectrum and this will drive gold and the stocks ever higher at some point.

All this money creation, the quantitative easing as we call it, creates inflation.  The genie is out of the bottle look at food prices.  Gold thrives in this type of environment.  The gold market is small so if you think we have seen all the upside think again.  As investment and even sovereign funds take a position prices will soar due to the weight of funds entering this small market.  Massive amounts of capital compared to its limited size.

A rapidly appreciating gold price can affect many gold stocks at this same time pushing them higher.  Fail to do enough homework and you can miss out on gains by buying the wrong stocks.  I have generally found that scientific analysis methods work poorly.  Measure Enterprise Value and large deposits without greater understanding and you can still end up with underperformers.  The numbers don’t tell the story they are only part of the story.  Buying the cheapest stock can be the worst decision you could possibly make because investors may have been selling it off for all the right reasons.

Liquidity will flow towards stocks that are making progress towards larger deposits, higher earnings, higher production, significant balance sheet improvements or growth through acquisition.  It can flow even in negative macroeconomic phases where gold is correcting or consolidating at a given level.  Stocks that have been underestimated and undergo such change present the greatest opportunity for capital growth – these are the “five baggers” or better that can multiply your money fivefold in a relatively short space of time.

Consider how long it would take for money in the bank to double.  There is still low hanging fruit in this gold sector it is just harder to find.  Significant undervaluation can and does exits and persist over prolonged periods confounding many investors.  Only comprehensive work will alert you to the opportunities so the bad news is that it is hard work to achieve stellar gains.  Only research that combines undervaluation analysis with experience and then times the entry with heed to internal progress or macro analysis can earn you the gains you seek from this sector.

We are releasing a special GoldOz report to educate investors this week.  This also corresponds with a special discount offer on 3, 6 and 12 month Gold Membership at GoldOz if anybody is interested just visit our store page for details.  Dips like the current one we are experiencing in the gold stocks are fantastic buy opportunities. 

Good trading / investing.
Regards,

Neil Charnock

www.goldoz.com.au

GoldOz has now introduced a major point of difference to many services.  We offer a Newsletter, data base and gold stock comparison tools plus special interest files on gold companies and investment topics.  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 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