Found this to be very interesting hopefully somebody hasn't already posted it came off of Kitco news
Gold & silver technical comment
There is a very high probability that the gold & silver price slump of 2006 is now past and now we can look forward at the future of these rare metals. The break to the upside from the recent test of the 300dma was expected and now confirmed with a $70+ rally which is very positive. We may experience a test of support / old resistance around US$580-610 area one more time and the candlestick hammer formation on 15th November was the beginning of that process which may also be past us now. Previous resistance at this area had to be tested at least briefly to confirm the break out.
The recent higher low in early October (compared to first correction low in mid June 06) was a very important reaction by traders and physical gold buyers, base support was set (almost an exact double bottom) and now we see the resultant impulse off this support. It is vital to understand that gold became oversold at these sub $580 points. Mid September 2006 to mid October saw a mini inverse head and shoulders with neckline at about $600, a classic rounded reversal pattern.
This entire classic bottom formation we have just witnessed is called an Adam and Eve bottom. The very sharp June low (Adam) and the second more gentle October rolling bottom (Eve) is a powerful signal, this is high reward low risk setup. The size of the signal indicates we are potentially headed to new gold highs in this rally to date but not in a straight line of course. Long sharp declines require a base formation and this is not what I see in the gold chart. I see a steep rise on the weekly chart and a consolidation phase which has bottomed and almost completed... at last!
Silver led gold and the gold to silver ratio is below 49 as I write after reaching into the mid 50’s. Back in the first half of 2003 when I purchased my bullion this ratio was in the mid 70’s… we have come a long way. The base price for silver is now around $11 and I believe we are unlikely to see that again. If we do I will welcome the chance to add to my bullion account.
Getting in Ahead…
I have been surprised at the ferocity of the beating the Australian resource stocks have received this last week; this appears to be a negative divergence. I have to wonder, along with several readers, what the nature of the market force driving this movement actually is, and about the motivation of the sellers setting off such a movement. Could it be re-positioning by big players? In any case this has opened several opportunities because several stocks have been beaten down to ridiculous levels, a wonder to behold. Three positive days since indicates this was an anomaly.
Notable comment from our two top mining houses who operate on a global scale; they both see strong commodity prices in 2007 and beyond. Huge international institutions are still increasing exposure to our share registers with new purchases, potential mine developers getting attention. If you don’t think this is significant you are mistaken. I believe this confirms my thesis with force.
Bottom fishers have been out in force at these price levels, those who listened or knew are “set” at optimum levels for maximum price appreciation. The triangle formation in gold was finally broken at the end of October, this is an important breakout. Now we have apparent price stability the crowd will begin to notice this pattern and move back in. The crowd will be bigger this time; the effect of this on such a small market cannot be underestimated.
Mining stocks
Mining stocks diverged from the final gold drop as expected and predicted, larger stocks in particular led the way which is a copy book signal for an upward break out. They also confirmed by additionally rising further with gold once it began to rise again.
Interesting note how just a few prime gold assets over here are being “consumed” once they “trip over and skin their knee”. I put it that way because for short-term reasons a company price may get trashed and the sellers come out of the woodwork in abundance, who is buying is what interests me for the medium to long-term. No other than J.P. Morgan just soaked up another $12M of this particular company which happens to have huge gold reserves and even more upside… think about that one and draw your own conclusions. They now own nearly $50M of this particular stock at a very depressed price and I don’t think they are about to reduce this excellent hedge against their global gold exposure.
On the same note, I could go on and on about this however I will spare you all… some of our smaller resource plays with monster resources have other local stellar names on their “substantial holder” lists, one I can think of is being dumped by impatient and or weak hands and yet one of our big banks just increased their parcel by 9M shares to over 43M shares. These big institutions are “in the know” and do their homework; I have noted it over and over. I am going to top up with more of this one at the first opportunity myself. Let me say it again… GOLD BULL JUST BEGINNING HERE FOR MANY COMPANIES, it is because gold in the Aussie dollar just broke to higher ground back in August 2005! You can still get in ahead of most players in this market, breakout already confirmed = fantastic opportunity. Once companies solidify their plans here we are seeing Northern American style price increases… five to ten baggers.
Due to the exceptional opportunities on the ASX I am going to focus on ASX Materials Index education via my web site and how to assist investors everywhere to profit from our market. They are just coming off a little but probability suggests not too deep so this is a perfect opportunity in my opinion. Our resource companies include some of the biggest on the planet and many have stellar resources in a number of continents not just Australia. This is a global market down here and I do not want anybody to miss out on the chance to make money and in the case of the US, hedge your global purchasing power.
My analysis concludes that there is a very high probability that within the ASX Materials Index, diverse and pure precious miners will out perform pure base metals plays and have a good chance of out performing many global indices. This will depend on how high this leg in gold carries, a test of the recent high or a blast off to higher ground. Fear is building in the US and this may be the catalyst required to ignite the next stage two gold up leg.
An exciting rally is forming in Australia now and the larger companies are generally leading the way. With all the money raised the last 12-18 months, drill rigs and laboratories are hard to access, so discoveries in this resource rich land are a certainty. The Australian Stock Exchange (ASX) has approximately 280 different companies that mine, currently plan to mine or explore for precious metals either exclusively or as part of their activities. I have updated this product now into six pages as I have separated the explorers poised to go into their development phase. If you are interested it is only AUD$20 for the whole set of data in the GoldOz store.
I am updating with suggested comments like burn rate where I can and have gone to considerable trouble to improve it. Just reading back through the first content and updating it highlighted which stocks moved strongly and why. Growth stories, change of focus to uranium, large resources in expansion phase with strong cash backing. It is clearer which smaller caps will move strongly next using this research, combining hindsight with fundamentals and peering into that tiny pinprick of vision we get into the future.
If you have limited or no knowledge of the Australian leaders of production in this field then you may well benefit greatly by reading on… more focused on larger stocks for the less experienced investor or more cautious. These leaders have strong track record so many risk factors are eliminated right away. Mining is a tough business and investors need all the help they can get.
Before I start though I want to re-state my opening paragraph from an earlier essay a few weeks back.
“Australia deserves to be rated as one of the lowest sovereign risk locations to mine and many of the ASX listed companies operate here with this low political risk. I have researched extensively and watched these stocks closely for 5 years now, this is a full time occupation and global economics is a passion I consider a necessity to protect my family and assets.
Here is the really interesting thing though… although the gold bull started in 2001 in the USA, the price has only recently broken key resistance at AUD$580 per ounce in Australia. Yes that is right, the gold bull just started in Australia even though activity amongst the miners has been increasing considerably the last few years. Even low grade mines can make a profit at these levels and prices seem set to go higher still”.
It is very important to digest and evaluate the performance of writers and although I have been public for only a short time I wish to draw some brief attention to a couple of the main calls I have made on this site. Firstly I called the bottom of the gold correction at the 300dma exactly, some three weeks before it happened and we have since rallied over $70 per ounce.
Secondly in early May amidst the bottom of gold and some loud calls that commodities were finished I wrote…
… Implications for ASX resource stocks
In the real world we have seen all this before… we have a strong precedent. Three separate examples in the last 20 years indicate a potential outcome in the near future…
Let’s take a brief snapshot look at the 1985 to 2002 period. Base metals rocketed higher in the late 80’s and share prices lagged however as the higher earnings filtered through to the public the resources index rallied forward in a gradual uptrend, despite commodity prices continuing to fall off their highs.
Smaller spikes in base metals ran through 93 and 94 with and then in 99/00 and the pattern was the same again… An initial hit on share prices as metals came off their highs (just happened) followed by a renewed uptrend in the resource equities on the ASX.
More importantly this was in a commodities bear market, paper assets had their time in the sun from 1980 to 2000 and this decade and most of next should continue to be the hard assets turn to benefit. If I am right about metals demand and continuing metals shortages the run will be even stronger however this would be a bonus driving these stocks strongly higher.
Thanks to the precedent we see above, probabilities strongly favor gradually rising resource stock prices over the near-term (12-18 months) as sentiment oscillates from good to bad in response to the numbers and news are released. Base metals have to come from somewhere and there may be further pressure on prices after correctional rallies when they get oversold which they appear to be right now. Market timing is going be more important than ever in this market.
September rectified the higher valuations of the large resource stocks to a large degree. Our leading resource giants have been hit hard and this has created significant opportunity while greatly reducing down side risk.) End of quote…
Resources now… base metals etc.
This has come to pass over the past several weeks Down Under with a magnificent rally for many of our quality ASX stocks. Our resource leaders with strong projects / balance sheets and low P:E have surged strongly posting gains of 50% in some cases in the last month or so. Many Australian, US and offshore investors may have missed the beginning of this rally due to lack of knowledge about this sector. There is a current mini correction underway from this breakout so all is not lost; I suspect this counter rally will be over in the short-term rather medium term, it has turned out deeper than I expected washing.
Prices were too high (short term) in many commodities; this does not mean the boom is over. China has apparently been supplying copper to the LME to cool prices so that can afford to buy what they need without blowing their own inflation through the roof. This is a new market force however they cannot keep this price management up for long, there is a real economic pressure from their demand pull inflation so they try to “manage” the situation as best they can under difficult circumstances. Reports have noted LME copper stocks up 50%, sensational news… really? As you see below stocks are way down in 5 year terms, only 3.5 days supply of copper at these so called “inflated” stock levels. Nickel… always tight, lead extremely low stock, still tight.
Prices even at this current level are very profitable for many companies which will continue to earn huge profits and bolster balance sheets. This will cause continuation of the rally, a bumpy ride with wonderful investment potential for experienced traders who thrive in times of volatility.
New investors tool at last
I have now produced a tool that all resource investors can use to assist investors to play the elite precious mining stocks over here in Australia, most mine base metals as well. I have now just completed this in-depth product on the top 38 producers in response to investor demand. It is a very comprehensive Excel spread sheet document containing a significant amount of comment boxes with all sorts of detail on these companies to give you a clear and strong overall picture of our leaders. Importantly one that allows for easy comparison.
It has over 28 columns, over 250 lines and covers shares on issue, market cap, options, price (with date), comprehensive data on projects in production, development and exploration. It also covers reserve data, production data and financial statistics such as cash holdings, profit, hedge books, P:E ratios, debt and earnings per share. The document is designed to give you a thorough reference tool that can be used to gain a more complete knowledge of our top miners involved in precious metals mining… the data in this study is too big to absorb in one go, or even gradually for busy investors, so I have put it all there in one convenient document available at www.goldoz.com.au .
This is user friendly, it has the ASX code column repeated through the document and the column code layered in for easy use. It is now available in “unrated” form for AUD$50, please ensure you clear my email address through your spam filter, ensure your email box has room, ensure you have Microsoft Excel before you order this product or it will not work… automation is under negotiation at present and we can be contacted at info@goldoz.com.au .
I am also still working towards a rated version of the same product and some investors may wish to upgrade or wait. I will undertake to supply the upgrade for the price difference (approximately $50 extra) and not re-charge to base product cost if you order now to get in ahead of the imminent rally. Do you home work and save valuable time with this new service. We continually search for and work towards better ways to present data for investors so improvements are always in the pipeline… we understand investors because we are investors.
Good trading / investing.
Regards,
Neil Charnock
