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Gold & Gold Stock
Opportunity Analysis |
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By Neil Charnock
Aug 21 2008 10:45AM |
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I have been searching for the bottom pattern in
gold’s current correction, and the level which is even harder.
Bottom picking is both dangerous, if you deploy capital, and
extremely difficult which is why I caution against it. Buying a
sharply falling price is like catching a falling knife. It can cut
you and even if you do catch it cleanly you must not let go as it
may land directly on your foot.
So we wait and watch for the turn signal which
indicates the trend has changed providing the ideal time for
investors to enter this market again. Some I know are averaging down
now buying highly undervalued miners on any price dip.
One of my contrarian contacts is an extreme sort of
a chap and a successful futures trader – he is highly intense and
intelligent and represents the ultimate contrarian’s contrarian in
my opinion. Back in December last year we discussed lows and a 400
dma support level breached by a favorite diversified miner here on
the ASX. I was looking for a bounce at that time and got it in that
stock; he was looking at the overall market however and expecting
the lows to continue to fall away into May this year.
But importantly he saw significant lows even earlier
last year during this period and was right. William also saw a broad
recovery in resources across the boards after this and the beginning
of a new large scale commodity up-leg.
Most investors are intelligent and this is actually
a trap of sorts – the obvious investment position is usually easy to
take and usually wrong too. Just when it looks highly likely that
the market will move in a certain direction – like lagging gold
stocks at the beginning of the third quarter last year (gold surging
higher) – it does the opposite. We could see gold headed higher and
knew equities were out of fashion yet logic dictated that these
stocks would follow. They didn’t and when gold turned down they
still kept falling past support levels and over shot any perceived
lows to the horror of longer term holders.
Gold just did the same thing overshooting
predictions by many analysts, bottom pickers were out in force and
the world was “too long” so it has to unwind according to an
associate Colin Emery. I have been caught by false break outs before
and even though there was excitement at the POG heading back towards
that $US1000 level – I did not buy it – not yet.
I speak regularly with a silver trader who got
carried away and thought the $16 level was the final support – but I
warned him that I saw $14.50 and to leave a low bid in for the final
sell off. My prediction was too high in the current volatility as
even this “unthinkable” low (unthinkable to him and many others at
the time) was overshot strongly. Silver is extremely volatile as the
initiated regular market watchers all know – it always overshoots in
both directions. Back to gold for now…
300 DMA and 20 month moving average – long term
supports
My colleagues and I have written about the 300 dma
for gold and how this moving average has supported the price of gold
throughout this bull market. I sent a chart out to subscribers last
week which showed the 20 month moving average on the long term chart
and gold has tested this level several times since 2001 – well it
just happened again. This average was tested and did support the
price yet again.
For a different take – here is a GoldOz colleagues
take on the 19th August – and his comments from the 12th August
below the chart…
GOLD - Comex JUNE 08 – Daily
From the 12th August comment when gold was testing
$US813: “in fact at best I think we are in for some sideways trading
consolidation – at worst we will test these major supports – line 5
and line 7 – and the major long term trend line 6.” Well the knife
was falling and Colin was right on the “worst” case scenario, it did
subsequently fall to support line 7 with the potential to still fall
to line 6 in the coming weeks.
Now summer in the Northern Hemisphere draws to a
close – Fall is in the air as the leaves brown off and in the
Southern Hemisphere winter draws to a close – Spring is in the air.
This is the season of recovery for precious metals well documented
elsewhere so I see no need to go over that ground here at present.
September is the turn point and this is logical however there are no
guarantees. With the US election looming we may have to wait and
this will fool some investors into thinking that a recovery is not
going to happen this season. However like late monsoon rains – the
recovery will swing back again - why?
$AUD935 gold – right now
Gold and silver are deeply oversold, the shares even
more so particularly the emerging producers. Depths not envisioned
by most if not all now scream – “buy me”, that is if you believe the
fundamentals and long term trends are still in place for gold.
Some of the base metals have become highly
attractive too. There are repeating divergence patterns in stock
markets indicating to this analyst that a turn is approaching in
sentiment – it seems impossible but resources and precious metals
will recover. Just as the worst of the financial results are being
reported this year and things look as if the commodity boom will
surely end – we will all get a surprise once again. I refer to
mining and precious metals not real estate or the US economy.
Gold stocks did not follow gold up into that initial
$US1000 + high and they were hammered further as gold subsequently
fell. They did not follow the false break to $US987 either and then
got hammered even further shaking gold stocks from all but the
strongest hands. The buying patterns are now slowly changing which
is what turns the RSI indicators and creates the divergences – this
is a give away that the worst id over now for some stocks.
Many of these miners have been making significant
progress towards increasing production and tangible results are
imminent or already in place “at the stope face”. The markets will
most likely bottom due to this confluence of occurrences (including
the over sold condition of the physical metals and mining stock
indicies) and strong hands will soak up more and more paper at these
levels.
Progress at the mines may not be recognized in the
share prices until results are reported –
after the fact – but the smart money knows this and is
picking up fallen and low lying fruit right now.
We now track the share charts closely on my PDF
files which have evolved significantly since I released them two
years ago – yet they are still too cheap. Patterns are emerging and
market timing will be assisted via this process. The market too – is
highly fluid with company failures (some sadly fatal), new emerging
companies on the scene and takeovers – this takes more time than the
average investor has to keep informed about. Turn your radars on now
because he who hesitates is lost for the lowest prices - but be
careful on your choice of stocks – and patient on your entry levels.
Media Disgrace – here we go again…
Direct from the same people that aired all the “get
rich through real estate” and “renovate your dream to make money”
schemes over the last 2-3 years here in Australia.
I just witnessed some absolute drivel on the
television where a spokes person from a “wealth building” magazine
was promoting dubious information. The blurb was simplistic rubbish
and finished with the astounding statement that “It’s never too
late, and never too early! A dollar today is worth a lot more than a
dollar tomorrow, so I would start saving that dollar pretty fast!”
If she had explained herself it does make sense if
you think about it – she is saying that the dollar will devalue.
Actually good advice - however she fails to point out that the
dollar saved - as she suggests - is currently suffering from
negative real interest rates! That is right the dollar saved is
losing value because inflation of goods and services is running at a
greater rate than interest rates paid on those savings.
That dollar saved is good support for the Banking
industry as a deposit (reserve requirements) however it is a losing
proposition – guaranteed! The concept of putting something aside is
sound however and if handled correctly is an excellent wealth
building exercise – however you are unlikely to become wealthy from
this activity unless you invest very wisely over the long term and
achieve stellar compound results.
The stupidity of the statement also lies in its
isolation from an explanation of inflation - and how to invest in
something that will preserve that saved dollar so that it has a
relatively increased value in the future. She had just talked about
real estate and Super Annuation, the realm of the modern sucker –
this garbage is literally “slops for the masses” – “bread and
circuses” as it was called in ancient Rome. It is only good as
entertainment value.
She promoted house ownership and also Super
Annuation based solely on taxation merits at 15% even if it is the
hands of inflexible super funds that can only invest in bank stocks,
industrials, property trusts and the “like” and real estate. Great
timing eh? Yeah “top advice” – real estate is set to stagnate at
best here in Australia and at worst will fall dramatically at least
in real terms (that dollar again and it’s relative value). Excuse
the outburst but I thought these guys had all but finished this
expert “advice” on how to get rich. Discipline and research and hard
work are the road to wealth these days, and business ownership
however only if you are extremely successful. At this stage I firmly
believe gold stocks are a great medium term investment, so is
bullion.
Gold and silver are real money so don’t buy the
illusion, get some – save in bullion - and get the real thing, not
paper, if you can!
Good trading / investing.
Regards,
Neil Charnock
www.goldoz.com.au
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GoldOz is currently developing a
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GoldOz is about to offer Australian Opals as further support for the
Australian mining industry – stay tuned for an Opal section – black
opals, investment stones and more unique beauty.
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.
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