Bull Market in Australian Gold Mining Shares
I posted the following on Twitter late last year highlighting the bull market in gold stocks:
NCM. Up 9% today. Yearly lows creeping higher, stealth bull market in Gold stocks while no one is paying attention. pic.twitter.com/U7BKRDReD9— Bullion Baron (@BullionBaron) October 4, 2015
SLR still languishing around 13-15c. Added MML @ 36.5c today. AISC quite high, but nicely leveraged to a rising Gold price if bottom is in.— Bullion Baron (@BullionBaron) September 24, 2015
Decent gains already, so is it too late to buy now? Andrew Mudie of The Motley Fool thinks so:
“Call me crazy, but with the numbers above, I think it’s too late to jump into gold stocks. Of course, the major risk to that theory is that any of the six issues above has a big impact and results in a huge flight to safety for money all over the globe. If this does happen, however, I believe equity markets as a whole will retreat (even gold stocks) so placing all your eggs in the gold basket could be risky too.”
2008 – 2011: XGD increased around 200% over 2.5 years.
Click Chart to Enlarge |
Click Chart to Enlarge |
Click Chart to Enlarge |
“The prospect of a convergent Brexit and Chinese slowdown should leave Aussie gold investor breathless given it will both boost the yellow metal and trash the AUD.All pull backs on gold now are buying opportunities with the usual caveat that if risk really does get trashed at some point then the flight to safety to the US dollar may hit gold short term. In that even it’s buy with both hands time given it is also the signal for imminent QE4.”
- The XGD is still 44% below the highs of the 2011 peak (mind you, many companies in the index would have seen shares on issue rise), while the Australian price of gold is less than 5% lower than it’s all time high.
- While the XGD has been trending higher for 1.5 years, gold miners elsewhere (e.g. HUI Gold Index) only bottomed 6 months ago. XGD is likely to follow global sentiment in gold miners.
- Gold is likely in the early stages of a new cyclical bull market, which I still expect will culminate in a bubble phase (to the secular bull market) at multiples of the current price. Gold shares will follow.
- The XGD spent longer basing before this recent move higher (compared with the 2008/2009 bottom which was a sharp ‘v’ spike lower and higher).
Click Chart to Enlarge |
I am playing the market a little more conservatively this time around and have concentrated on mid-caps which are already producing gold profitably, but are leveraged to the price of gold should it continue to rise. I am considering adding some juniors, particularly those with exposure to silver.
- I found Gold Nerds an invaluable resource for sorting through prospective gold shares a few years ago. Not subscribed currently, but likely to re-subscribe in the near future.
- For juniors, focus on those which are proving up resources/reserves rather than those about to start production (poor grades through a new mill poses much greater threat to share price than a few bad drill holes).
- Look for companies with low or no debt, tight capital structure and avoid those using speculative financing strategies (such as issuing shares for capital), see Gold Anomaly (GOA, now CGN) for an example of what happens…
- Don’t hold the gold miners once you think a medium term top for gold prices are near or in, no matter how solid you think the company fundamentals are.
- A gold bar won’t ever be worthless, but a gold miner can be, don’t invest capital in miners which you aren’t prepared to lose in it‘s entirety.
“A gold mine is a hole in the ground with a liar standing on top of it.”
Source: http://www.bullionbaron.com/2016/06/bull-market-in-australian-gold-mining.html
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