"In the current issue of The Privateer, we go into detail on why we expect this rally, unlike the last two rallies, to be sustainable. This has investment implications, not least on Gold stocks, and we go into all that too."
(Gold Commentary - June 30)
On the face of it, things are back to "normal" for Gold. The price has fallen almost $US 7.00 this week, even though New York trading didn't have a whole lot to do with it because New York trading didn't start until July 5. Most of the "damage" was done on July 3 and 4 in Asian and European trading. The $US 290 resistance level has held once again. At it's intra-day spot future low on July 7 of $US 282.60, Gold has retraced almost exactly half of its now six week trading range between $US 270.70 and $US 294.30. This week, U.S. stock markets are looking a tad healthier (the Nasdaq closed the week back above the 4000 level) and the U.S. Dollar itself has gained back a small amount of the ground lost since late May. Not only that, but the Fed didn't have to lift a finger, rates were left unchanged on June 28.
Gold has a long and distinguished history of hating holiday weekends in the U.S.. And for Gold, this was a long (four day) holiday weekend. It seems that every time the Comex is closed for more than the regulation two days, Gold goes down. Down it went again, but not too far nor too seriously. Of course, there was no talk about Gold from official sources in the U.S.. The talk was all about oil, and how the Saudis were seriously considering increasing their production. They haven't increased it yet, but the desired effect - a lower oil price - has already happened. That's good for "inflation", right? So who needs Gold?
Australians who invest in Gold stocks are a long-suffering lot, as a glance at any chart of the Aussie Gold index (try these) would make perfectly clear. As of July 7, the Aussie Gold index shows a loss on the year of 22.1%. In contrast, the Aussie market as a whole (as measured by the All Ordinaries index) is up 3.5%.
We post charts of the Aussie Gold stock index on a daily basis on this site, and we have lost count of the comments we have received, from Aussies and non-Aussies alike, to the effect of: "Geez, what a horrible looking chart". Now for quite some time now, we have not thought that the chart was "horrible looking" at all. Quite the contrary, we have thought it looked quite toothsome.
At its recent lows around the 660 level, the Aussie Gold index was at 15 year lows. The last time it was this low, back in 1985, the Aussie Gold price was about $100 lower than it is now. In fact, for about six weeks now, the Aussie Gold index looked to us to have little if any downside left on it
The problem with Gold stocks is similar to the problem with almost any other type of stock. People have a tendency to hold onto them - no matter what. And because Gold stocks are by their nature more volatile than most, this practice can and does tend to result in some positively eye watering losses. It has certainly resulted in same on the Aussie market over the past few years.
Gold stocks are not, and never have been, an indefinite "buy and hold" proposition. When they go up, they usually go up FAST. When they go down, they invariably go down even FASTER. In short, they are a risky proposition. But there are times when the risk is quite low. And there are times, admittedly rare and precious, when the risk is practically non existant. That has been the case in the Aussie Gold stocks since they first hit their 660 low back at the beginning of May. And that's why, in recent times, we have seen the Aussie Gold index as being anything but horrible.
As stated at the top of this commentary, we devoted a large part of the current issue of The Privateer to Gold - and Gold stocks. As it turns out, our timing was extremely good. As you can see on the chart of the Aussie Gold index, the local Gold stocks have awakened with a vengeance this week. Right now, the chart looks about as far from "horrible" as it is possible to get.
And, for the benefit of Privateer subscribers, so do quite a few of the individual Aussie Gold stocks (username/password required).
The resurgence in Aussie Gold stocks over the past week has been attributed to takeover rumours in several of the few remaining large Aussie Gold producers. Certainly, this is a factor. But it is nonetheless the case that the local index has staged a significant rally - IN THE FACE OF A LOWER $US GOLD PRICE. This is clearly a case of anticipating a turnaround in the Gold price - SOON. Aussie Gold stocks are not "big" in the U.S., but they are in Asia, and in Europe. And both Asians and Europeans have, in the past, shown themselves quite astute in picking turns in local Gold stocks and in Gold itself.
Rightly or wrongly, they are picking one again. We shall see. But in the meantime, this is definitely the best chart pattern we have seen on the Aussie Gold stock index since at least the end of 1992. If you don't know what happened in 1993 - we'll tell you.