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Welcome
to 2011 from GoldOz and we wish you a healthy & prosperous year.
There
is an old joke about being kept in the dark and fed manure – about
people being treated like mushrooms. The joke refers to how mushrooms
are grown, in moist dark conditions however they are not fed manure anymore
…yet people still are. The knowledge that corporations and
governments have been treating clients and their constituents in this manner
is perhaps why the Wikkileaks blog is so popular. Wikkileaks is
supported by some high profile people. It is causing embarrassment to
people in high places and is of great interest to large numbers of people.
It appears education and disclosure are well sought – there is big
demand. People need and sometimes want to know the truth and they
certainly need to learn financial intelligence.
So
it is with the broader gold community which is why GoldOz has been biased
towards education & data rather than pure data alone. Our
belief is that people don’t like being made fools of, to be kept in the
dark or to be lied to and yet governments, banks and corporations have grown
extremely large doing just that over a long time. Thanks to the World
Wide Web this is changing and the people now have a much greater voice.
At this particular point in history it has never been more dangerous to be
travelling without knowledge of financial matters.
The
world has pinned economic salvation and escape from the debt pyramid onto
growth economies and financial stimulus. Yet the size of the economies
expected to carry us through, as graphically displayed below, indicates that
they are just too small to carry all the much larger weaker economies.
Therefore much stimulus will be required even after the current QE2 –
quantitative easing no.2. This means quite simply that the crisis will
continue to drive gold for many years yet.
 
Note:
EMU highlighted in black includes individual European nations Italy and
Spain. The problems in France and Germany are more due to counterparty
risk and EMU issues at this stage of the crisis.
Don’t
listen to the lies - you have to read between the lines. A quick study
of monetary history and a full disclosure on the present monetary system and
an understanding of the greatest debt bubble in history make gold and silver
investment a “no brainer”. The need is huge, the supply is
limited and the saturation level amongst the general population is almost
non-existent. The need for education and disclosure is paramount at
this point in history and I want to commend these web sites and professionals
that have been spreading the word since the early naughties – back in
2001 or even as early as 1999 when the seeds of this need germinated in the
beginnings of the greatest Gold Bull in history.
It
is important to look at your own scorecard to see if you have been on track
or not. As I am on the public record it is even more important to be
objective and look to continue to improve one’s act.
We
have had a great 2010 year at GoldOz – a great year predicting the
markets. Back in January we saw gold going to US$1400 by May yet the
grind up was uncommonly slow. The price did reach US$1400 as we stuck
to our guns on the price target through the year. Gold stocks
disconnected from the general stocks in April 2010 here in Australia.
We have been cautious on the sector for a few months however all we have seen
is isolated falls and rises resulting in a net sideways consolidation as
Aussie gold stocks have been accumulated. We are articulating this in
detail in our newsletters for Gold Members along with our ideal educational
portfolio draft contained at the end of our Ratings Table.
We
were spot on with the Euro and stated back in January that it would be like a
flightless bird this year and it got smashed down to 1.2 against the
USD. I also stated that the Euro zone was likely to take centre stage
after US hogged the news flow in 2009 for all the wrong reasons. We
detailed how the debt collapse would be slow and painful. It was also
stated that the problem was not going away and it did not as we have
seen. Here is a recent excerpt from a newsletter showing the
troubled Eurozone members and the UK. These are the bars of doom and
the metrics from hell.
We
have altered the scale of the deficit as a % of GDP and multiplied the
unemployment % x 10 so these important metrics all fitted on the same
chart. There is Spain with a 200 reading for unemployment which equates
to 20% unemployment. Deficit to GDP is supposed to be less than
30 which is the 3% agreed on under EMU rules – Greece is pushing
14.3%. The % debt levels sort of look normal here because they are at
similar levels. This is just government debt and therein lays the
problem – these excessive levels are actually the tip of the iceberg.
When you add personal, business, municipal and state debts throughout the
world the problem is far worse. Greece recently “found” a
large amount of off balance sheet debt not disclosed on entry into the
EMU. Unfunded government liabilities are even larger and harder to
quantify.
Other
predictions included; stimulus to continue – we got QE2, property crash
not this year in Australia – but sector weak and it has fallen into
extremely flat times at year end. I believed the AUD would weaken
faster and yet this proved wrong as the USD won the currency devaluation war.
In
January last year I did feel confident to predict the Aussie gold stocks past
June and said the top was due in April (XGD – Australian gold
index). That top turned out to be slightly exceeded in June to make a
new H1 high. A correction did occur past that but it was small.
There was no major correction for the rising Aussie gold sector last year.
After
the middle of 2010, on June 8th I penned this – all
available in archives of large gold sites: Many of my colleagues and I have
been telling you to invest in gold and silver for years and those that have
done this have benefited tremendously. From 2000 on the US citizens
benefited more than any other from precious metals because they are a hedge
against a falling currency. As this crisis hits certain points the
price of gold will rise dramatically against all currencies. This phase
may have already started and the gold stocks are going to launch next.
Then
on June 23rd 2010
Volume
has been solid as we approached the tip of the apex of this formation.
We have an excellent chance of upward price action here in the second half of
2010. This preceded a large break out in the second half of the
year. It did not happen instantly it took several weeks to begin but I
am still extremely happy this call.
Just
a quick note on Europe, yes I know I harp on about this however I cannot
believe how poorly debt is understood. Confidence is creeping back
there too but for how long? The recent stress tests in Europe proved
nothing because they valued the Greek, Spanish, Irish (etc) debt at
par. This has everything to do with gold so let me persevere here
please. This is the source of the next burst of interest in gold from
the Euro zone, which will be strong, and likely to produce another burst of
currency volatility.
That
is exactly what happened. We also highlighted the Rare Earth
blast off and many hot investments in the gold sector in our Newsletters
which form a part of our Gold Membership service. We know you were
happy due to the exceptionally high re-subscription rate. But what
about 2011 you say?
2011
Forecasts
As
we start this calendar year we have to stay alert that the global system has
not returned to broad sustainable growth despite continued efforts and
massive injections of capital. We still face a world in
disequilibrium. The largest “first world” economies (EMU,
USA, Japan) are still on stimulus induced life support. Their
troubled GDP’s still dwarf the BRICS group (Brazil, Russia, India,
China & now South Africa).
Massive
deficits are staving off recession in stronger economies & sovereign
defaults in the PIIGS of southern Europe (for now). The surplus
economies appear to be stealing jobs from deficit nations. Capital
controls and protectionism are the only recourse of the weaker nations.
To make it even more interesting we now face a mature bond market cycle
(fixed income is finished). This situation is unfortunately
getting worse not better.
Interest
rates are heading up now because the bond bubble has burst – this is
not the time to be invested in bonds because you get killed on rising
yield. They lose value as yield rises so there is a huge capital wave
heading out of the debt markets. Too bad if you bought the “low
risk” lies at the top of this market. When a country is forced to
restructure the bond holders cop a haircut – they lose capital.
Many bond investors know this and are withdrawing their capital in response
to increased risk.
Two
logical things happen here; first it gets harder to borrow and refinance,
second the shift in momentum is to equities. Make no mistake stocks
markets will rally on the crest of this capital wave. Miners appear to
be the logical choice for equity funds and the gold sector will benefit
greatly. After all who would want retail, property trusts, finance
sector or many industrial stocks when growth is lousy, discretionary spending
is shrinking and risk is unacceptably high for banks and property.
Banks
face funding shortages and so does everybody else. Banks are already
turning their attention to comply with Basel 3 and the new reserve
requirements. Balance sheets have to shrink and interest rates
will continue to rise putting pressure on the clients of the banks.
Then there is the legal problems arising from the CDO administration bungle -
title concerns on mortgages in the US. JP Morgan has set aside $5B for
legal battles as the US banks face a messy 5 year period on that front.
As
troubles intensify in Europe and interest rates rise in the USA the Fx boys
will probably rally that USD. Remember their box is specialized so they
operate with their own set of criteria. Will they ask if the US can pay
back? We expect not. Is USD investment logical when the total US
debt is awful? Well no. Once the Fx boys see they are going to be
paid to hold USD’s they will buy and cause a rally. Will it be long
lived – no, this would be a short term or intermediate trend. If
this comes to pass it will buy time for this dying currency and push down the
AUD providing a benefit for the Aussie gold stocks.
We
see another interest rate hike in China soon to curb their inflation woes as
local and world food prices escalate. They have to pop their property
bubble and cool economic activity so they will be touching the brakes
again. Up go reserve requirements and down goes growth a little.
It will still remain high however for a world addicted to maximum growth in
China this is still a short term negative factor. They seek to control
the inflow of hot money and to maintain “appropriate” levels of
liquidity in their banking system as they monitor and nurse their fantastic
growth rates.
The
trade surplus (reserve) in China has now reached nearly $2.7 trillion dollars
however most of this is caught in US denominated assets, in particular US
Treasuries. The latest trade surplus came in at only two thirds the expected
level ($20.8B estimated by economists) at only US$13.1B and way below the
November level of $22.9B. Reports suggest that internal consumption is
growing and will continue to grow over coming years which is great for
commodities. The Chinese are prudent – I could only dream of such
financial vision for Australia, the US, et al. They are trapped in
these US Treasuries however and it remains to be seen how this will pan out
in the end.
The
Euro will be under duress, another flightless trajectory for the flightless
EMU in the first half. This is tragic for citizens of Europe and I
deeply feel for them. This will add further demand strength to gold and
the USD. These are ideal conditions for local Australian gold stocks
and therefore I am moving towards less cash and more gold focused equities
myself, during this pull back as I employ my own portfolio growth
strategies. I outline these in my Newsletter.
Central
Banks and Sovereign Funds do not want to get trapped in US Treasuries (like
China is) so they are buying gold. This will continue this year
providing a strong floor under any gold price contractions such as the one we
are currently seeing. Therefore this is an accumulation phase so buy
the dips – buy the base lines and get set for some profit taking later
this year.
Gold
and Aussie Gold Stocks
The
good news is that the XGD is getting more oversold with the RSI currently
reading about 36 as I pen this today (11th). The last time
the XGD was this oversold was back on the 5th of May 2010 at
35. This index has fallen 500 points or about 6% since the 4th
January. This is mainly due to a 6% fall in NCM due to the shallow gold
price correction, a sediment allegation at the Hidden Valley PNG, a small mud
slide at Gosowong Indonesia and the situation in Cote d’Ivoire
(political strife). Newcrest dominates this index as I keep
saying so you might as well state the rest of the sector at this top end has
averaged a neutral move so far this year.
The
giant sovereign funds and central banks will be buying gold here and they
have very deep pockets. Nothing fundamental has changed for gold and I
expect further gains for it – and silver this year. The
following chart shows two flat lines below the MACD and the RSI to indicate
previous oversold levels.
I have
also drawn two ellipses which contain very similar consolidation
patterns. Given these patterns on the daily chart I consider a
dip to the 1260 area is unlikely.
Knowing
markets however I have to say that it cannot be ruled out. Probability
is low – chance of upswing shortly is higher given the technical
indications.
If
you have missed my articles for the past few months I apologise – we
have been extremely busy delivering to our growing client base - our main
focus is the Newsletters, investment tools and data bases.
One
of our latest developments is a free ore valuation tool available at GoldOz
– follow this link if you have interest we think it is useful. http://goldoz.com.au/commodity_valuation.0.html You heard about it first at
this fine web site and it is available for full publication to other precious
metal and mining web sites on request. It can be modified to suit your
readers or production profile. We wish you all great success for
2011. Much more for subscribers…
Good
trading / investing.
Neil Charnock
Editor,
Goldoz.com.au
REGISTERED
ADVISOR – WHO THE ADVICE COMES FROM IN THE GOLDOZ NEWSLETTER:
Colin
Emery is currently a Branch Manger and Senior Client Adviser of a Stock
Broking Company in Queensland Australia. Prior to his work in Share broking
he spent nearly 20 years in Senior Management and Trading positions in
Treasuries for major International Banks such as Bank Of America, Banque
Indosuez, Barclays Bank, Bank Of Tokyo and Deutsche Bank AG. He spent a
number of years as a Senior trader in New York, London, Singapore, Tokyo and
Hong Kong with these institutions. He also was Global Head of emerging
energy, emission and commodity products for the leading Energy and
Commodities brokerage firm of Prebon Yamane Ltd – Prebon Energy for
four years before moving to Cairns in 2003 to focus on the Stock market and
Private consulting work. The private consulting and advisory work currently
undertaken is with companies involved in Resources, Energy and Renewable
Energy and Forestry.
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 my current opinion only,
further more conditions may cause my 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.
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