What is happening with the gold sector ?
It was not so long ago that gold was riding high at around USD $1370 (Figure 1). Everything gold was fantastic and I could see many exploration projects attracting the eyes of investors. That was a fantastic run. I think the Australian investing (small cap exploration types…) community was getting excited and rightly so.
Then gold started going the opposite direction. Trump was taking office and the jokes were getting less and less and the reality started sinking in that maybe he is not that bad…. or could he…. ?
The good thing was that the consultants that I know were still telling me that they were very busy. The fact that the gold price in AUD was really not moving that much meant that many investors still felt comfortable that Australian gold producers were still doing well. However, the fickle market seem to always look at the USD gold price as sentiment.
The good news is that China is a buyer and a a big buyer. I think if the market thought the iron ore project buying spree was big, I think they have not seen anything yet. I hear news on the grapevine that things have been and will be getting busy. The bad news is that they are a lot wiser now and things will not be so easily sold without proper due diligence.
Where will the gold price go ?
If you look at the gold price from the mid to late 1990s (Figure 2), the approximate 50% retracement is around the 1050 mark. Now the current price of 1169 is not too far. So if you are a gold punter and you are looking for a base to work from, this is a very interesting time.
When the gold price was above 1200, many traders were saying that it needed to break that support to create a clear view and now that we are at these levels, many are calling for support signs above 1200 before they will call a long buy. I think this is a very interesting scenario as it was about 12 months ago that the gold price was at the level of 1060.
I think as usual, the market has already prepared for something, bad or worst, I am not sure but as you can see, a lot of gold producers are now with share prices at lower values than months ago. I do see some that are going up (ASX:SLR) and to me, that could be a sign that the company is healthy or have a healthier play in place… 🙂
Dacian Gold not getting their full placement is very interesting but I am sure the quality management have that under control. Even the Michael Jordan of the industry, Northern Star Resources (ASX:NST) have taken a belting in the share price since July.
As the great Warren Buffet have always said, companies do not devalue overnight so when there is a sale happening on the share price, buy happily.
What does it all mean for me?
It very simple. We are coming off the worst downturn that I have seen in my 25 years in this resource sector. Pricing of every commodity that is worthy of mentioning have come off its lows and some like tin have gone to as high as it was in the last 7 years. Coal has taken a run and in an article on the Australian Financial Review quoting coking coal prices at as high as $US300/tonne and thermal coal at Newcastle port at up to $US89/tonne.(http://www.afr.com/markets/how-an-administrative-oversight-in-china-sent-aussie-miners-skyrocketing-20161208-gt6w92)
I have been a buyer for the last 12 months but I think there is a correction happening now.So I will go with Mr Warren Buffet. Buy wisely when the sale is on …. 🙂