EURUSD is facing the resistance of the downward trend line on 4-hour chart. A clear break above the trend line resistance will indicate that the downtrend from 1.3966 had completed at 1.3705 already, then the following upward movement could bring price to 1.4000 area. On the downside, as long as the trend line resistance holds, the rise from 1.3705 would possibly be consolidation of the downtrend, another fall towards 1.3550 is still possible after consolidation.
Provided by ForexCycle.com
Whether he likes to admit it or not, the crowd love to hear Kris Sayce talk.
Monday afternoon, he entered the stage at the World War D conference to a loud applause.
Kris loves to be controversial. And that’s what he delivered yesterday…
He started his event with a story called the Gift of the Magi. A story of a woman who sold her hair, her most precious possession, to buy her husband a chain for his watch. However, as she sold her hair, her husband was out selling his watch, his most prized possession, to buy combs for her hair.
The point of the story? Nothing. In Kris words, ‘…it was a red herring.’
In fact, so was the title of his presentation.
All Kris was doing was diverting the crowd’s attention. But they couldn’t work out why.
And this is exactly the point he was trying to make.
Over the past six years, you’ve faced tens or hundreds of investment red herrings. All this has done is distract you, or stop you from making money.
As Kris told the crowd, by all means, don’t ignore the crises as they come and go, but don’t let it consume you. Which is, in Kris’s words, ‘the message I want you to take from here today’.
The current crisis, Crimea, is just another distraction you face.
After demonstrating to the crowd how easy it is to get distracted by macro events, he declared war…on contrarians! At this point, I thought the crowd was getting ready to boo Kris.
However, the reason why he was attacking contrarians is because he reckons they simply don’t know what it means to be one anymore.
Being a contrarian investor isn’t doing the opposite of everyone else. That view is wrong. Because if you think that’s what contrarian investing is all about, then you’re a seller in a rising market, and a buyer in a falling market. Investing this way will just mean you blow your capital quicker than other investors.
But the real art to contrarian investing, as Kris explained, is getting behind an idea before the rest of the market does.
He went on to add that too many so-called contrarian investors get caught up in the little things.
Economic data detailing a half a percentage point drop in China’s economic growth…or one nation state fighting with another nation state. Yes these events are important, Kris reasoned. But they should not be the sole analysis behind your investments:
‘Investors spend too long focusing on charts and meaningless statistics,’ Kris told the audience. ‘Paralysis by macro-analysis.’
‘Contrarians have lost the plot in searching for the charts.’ Kris told the crowd. Adding that it’s made worse by the mainstream media constantly discussing what could be the next crisis or ‘black swan’ event.
‘Had you heard of SHIBOR, before it threatened to take the market down?’ Kris asked the audience. No one answered. Yet, we all knew the answer. No, we hadn’t heard of it. And no one has heard of it since.
In fact, Kris said there had been over 20 ‘crises’ since 2008, and each one has seen the market rally. Not crash like the mainstream try to predict.
Instead stocks keep going up.
The audience were transfixed at this point, taking it all in. Kris continued:
‘The trouble is when you’re constantly trying to pick bubbles and crashes you’ll inevitably pick a whole bunch of stuff that will only have a minor impact on the broader market.
‘Contrarian investors and advisors are partly to blame for this. Contrarians have allowed themselves to become crash predictors rather than investing opportunists.‘
After his attack on fake contrarians, Kris moved on to what he thought was the biggest threat to your wealth today.
Two types of criminals. Cyber criminals and government criminals. The crowd laughed and nodded in agreement about the government being crooks.
Cyber criminals cost Australians $4.8 billion in 2011. Whereas the government managed to take $329 billion from Australians in either direct or indirect taxes in 2012. As Kris said, ‘Even the smartest private sector criminals haven’t yet found a way to take your money before you’ve taken possession of it.’
After making sure the crowd was on side, Kris then offered some investing tips.
Emerging markets are presenting a great investment opportunity, Kris reckons. China’s economy, still classed as one, still has potential. The Chinese government aims to lodge two million patents by 2015. This could be the catalyst to shift them from a manufacturing hub into an innovation hub.
As Kris said:
‘[China] hasn’t innovated in one damn way over the last 1,000 years. China’s most recent innovations are paper and gunpowder. That tells you something about the lack of innovation. But that’s about to change.‘
The problem is there are red herrings all over the place when it comes to emerging markets.
But don’t let this put you off, because there’s big future for this speculative but growing sector.
Shae Smith+
Roving Reporter for Money Morning Australia at World War D
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‘Capitalism is Dead‘
That was the controversial theme of Richard Duncan’s World War D presentation. In place of capitalism, Duncan argued, we now have creditism: a form of credit-fuelled economic growth directed by the US government.
But, he warned, that system is in danger of imminent collapse.
Duncan pinpoints the beginning of this new system – or the death of capitalism-as the First World War. To pay for US weaponry and technology, the Europeans gave the US gold. This fuelled a massive credit boom and the period known as the roaring 20s.
It couldn’t be repaid, and triggered the Great Depression. When war returned, the government took over every aspect of the economy and increased spending by 900%.
That changed the global economy forever, and then a bigger change came along…
Up until 1968 the US Federal Reserve had to have at least 25% gold for every dollar printed. By 1968 the US was running out of gold, so they changed the law. Money was no longer linked to gold, and the US could create as much credit as it wished.
Debt exploded from $1 trillion in 1964 to $50 trillion in 2007, and the world enjoyed close to four decades of growth.
While common thinking is that debt is unequivocally bad, Duncan makes the obvious point: Credit growth equals economic growth.
He sees the dangers. Asset prices inflate in an upward spiral, creating more collateral for consumers to borrow against but, as he says, the ‘day always comes when credit can’t grow any further‘. In 2007 the private sector couldn’t repay its debt and the government had to jump in.
And now, he says, ‘Creditism has created unprecedented prosperity around the world, but it’s on the verge of collapse because the private sector cannot bear any more debt.’
That diagnosis doesn’t stray too far from mainstream opinion – it’s his solution however that had audience members shaking their heads in disagreement.
He made the case for increasing, rather than cutting debt. Duncan pointed out that there have only been nine times since 1952 where credit has grown at less than 2% per annum. Each of those periods created a recession.
Duncan calls this 2% debt level the recession threshold. In order to reach that threshold, the US needs US$2.4 trillion dollars in credit growth to reach this threshold, but that looks unlikely according to Duncan. ‘Judging by history we’re not going to have any economic growth,‘ Duncan said. ‘If this half-century long credit bubble pops, civilisation wouldn’t survive.‘ Unemployment would rise, globalisation would come to an end, welfare would cease, the US would lose its military dominance, China’s economy would implode, and there would be widespread starvation, chaos and war.
For Duncan, it’s imperative the US maintains its stake in creditism. ‘[the global economy] is like a big rubber raft. Instead of being inflated with air, it’s inflated with credit‘. The problem he says is that the raft is defective, full of holes, and keeps leaking credit. ‘Policy makers are absolutely terrified that if it sinks it will be like it was in the 1930s and 40s,‘ he said. Bump in more credit, asset prices go up, people are kept dry and happy, and the raft stays afloat.
So much credit has been created globally that the earth’s seven billion people can’t service it. The private sector can’t bear more debt either…but the US government can, according to Duncan. Japan’s debt is 250% of GDP, but US debts stands at 100%. America could borrow and spend another US$17 trillion and only reach 200% debt to GDP.
At this point the audience looked rather sceptical, especially given the Japanese response isn’t known for its success.
But Duncan pushed his case. The economy must ‘inflate or die‘, because the capitalist economic system died 100 years ago. The world requires further credit expansion or it will face utter collapse.
‘How about we learn from Japan’s mistakes?‘ asked Duncan. The Japanese wasted government money on building bridges to nowhere, and paving the Japanese countryside. Instead, he wants the US Government to invest in new technology – US$1 trillion in solar, biotech, GM and other new technologies.
He envisages the US government sparking a debt-fuelled, technological revolution that would create profitable industries. ‘This is not only a once in a lifetime opportunity, it’s a once in a history opportunity,‘ he said, that could cure disease and bring people out of poverty.
That sounds like optimistic vision. The reality is less rosy for Duncan.
Politicians, he says, don’t get it. Neither the Democrats or Republicans will increase debt, and the world will plunge into depression.
Money Morning readers don’t usually read defences of government spending and debt, and the audience definitely looked challenged at times.
But on that final point – the deficiencies of politicians – there were many heads nodding in agreement.
Callum Denness,
Roving Reporter for Money Morning Australia at World War D
By Chris Vermeulen – thegoldandoilguy.com
Index ETF Trading Strategies: Stocks have kick started this week with a 0.85% pop in price but the big question is if the market can hold up. Last week stocks repeatedly gap higher and sold off with strong volume telling us that institutions are slowing phasing out of stocks (distribution selling) unloading shares into strength and passing them onto the a average investor to be left holding bag.
I want to show you a couple charts which show the price action, volume and money flow of the SP500 so you have a visual of what I am talking about.
In the chart below you can see the price gaps followed by selling. Why is this important? It is important because during a down trend the market makers and big money plays who have the money and tools to manipulate the markets will allow the market drift higher or they will run price up in overnight or premarket trading when volume is light. Once the 9:30am ET opening bell rings volume and liquidity spike which allows the big money player to sell remaining long positions and or add to short positions they have.
If you look at the blue on balance volume line at the bottom of the chart you can clearly see that more contracts are being sold than bought which is typically an early warning sign that the market is about to fall farther.
Below is a marked up screen shot of my automated trading system which I use for timing both futures and ETF trading strategies. The color coded bars tell you the market trend along with the strength of buyers and sellers.
When you couple market cycles, trends, volume/money flow, along with chart patterns we can forecast and trade markets with a high degree of accuracy in terms of market direction and timing. Ross Clark & I talk about cycle analysis, market stages etc… which you can listen to live here:http://talkdigitalnetwork.com/2014/03/this-week-in-money-129/
My Index ETF Trading Strategies Conclusion:
Just to be clear on the current market trend and my overall outlook let me explain a little more. Overall, the broad stock market remains in an uptrend. Thursday and Friday of last week we started getting orange bars on the chart telling us that cycles, volume, and momentum are now neutral. It’s 50/50 on which way the market will go from here, so until the market internals (cycles, volume, breadth) push the odds in our favor enough for a short sell trade or a new long entry we will not add new positions to our portfolio.
It is important to understand that nearly 75% of stocks/investments move with the broad market. So we don’t want to add more long positions when the odds are not in favor of higher prices. Trading in general is not hard to do, but creating, following, executing properly money and position management is. If you have trouble with following or creating an ETF trading strategy you can have my ETF trading system for rising, falling and sideways markets traded automatically in your trading account.
By Chris Vermeulen – thegoldandoilguy.com
If you turn on CNBC first thing in the morning, you hear a lot about market indicators. Consumer behavior, GDP numbers, the Fed, interviews with CEOs — it’s all in the mix.
Instead, Steve Hochberg of Elliott Wave International looks at important indicators that mainstream finance often overlooks.
For example, consider this insight from the latest, March issue of Steve’s Financial Forecast.
This chart shows you that banks have dramatically underperformed the broad market since the Great Credit Crisis began. The top line is the KBW Bank Index. The bottom line is the ratio between the Bank Index and the S&P 500. Notice how the decline in the ratio came before the February 2007 reversal in the Bank Index. And the Bank Index reversal itself anticipated the October 2007 reversal in the broad stock market.
Most importantly, this chart shows you that
“…the Bank Index’s underperformance is even more pronounced now than it was in 2007. While the S&P moved to a new all-time high, the bank index has managed to retrace only 51% of its 2007-2009 decline!”
The bottom line is: Relative to the S&P, bank stocks made a high four years ago. So the question is, are the financials once again a leading signal of an impending credit contraction?
Discover the answer for yourself in Elliott Wave International’s new special report, “The Financial Forecast “Nuggets” Report.” You can get it — FREE — right now. See below for full details.
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This article was syndicated by Elliott Wave International and was originally published under the headline Are Bank Stocks Sending an SOS Signal?. EWI is the world’s largest market forecasting firm. Its staff of full-time analysts led by Chartered Market Technician Robert Prechter provides 24-hour-a-day market analysis to
institutional and private investors around the world.
CRUDE OIL: Although Crude Oil remains biased to the upside in the short term, it now faces the risk of a pullback. This view is consistent with its rejection candle printed (daily chart) the past week. Though trading almost flat during Monday trading session, that pullback looks to have been triggered. Support lies at the 100.15/28 levels where a reversal of roles is likely to occur but if violated, further weakness will aim at the 98.80 level. A cut through here will open the door for more decline towards the 97.00 level. Further down, support comes in at the 96.26 level followed by the 95.00 level. On the upside, resistance resides at the 102.22/89 levels where a break will aim at the 103.54 level. Further out, resistance resides at the 105.21 level, its Feb 2014 high. All in all, Crude Oil remains biased to the upside in the short term but faces corrective risks.
Article by www.fxtechstrategy.com
Source: Brian Sylvester of The Gold Report (3/31/14)
http://www.theaureport.com/pub/na/robert-cohens-three-drivers-for-the-gold-price-in-2014
Like the rest of the market, Dynamic Funds is being choosy as it shifts cautiously from bullion to equities, in what Vice President and Portfolio Manager Robert Cohen describes as “baby steps.” In this interview with The Gold Report, Cohen explains his method of analyzing miners and discusses companies that offer good prospects.
The Gold Report: Low interest rates, a cornerstone of recent modern Western economic policy, have proven positive for gold over the last several years. What do you see as the three primary price drivers for gold this year?
Rob Cohen: The primary price driver is global liquidity. That is fed by balance-sheet expansion in many Western countries and foreign exchange reserves, typically the result of trade deficits built up in countries such as China.
Number two is real interest rates. The Federal Reserve could tighten rates, but we don’t know where inflation will be. Negative real rates are very good for gold. Mildly positive real rates are not harmful for gold. Positive real rates above 2% can stall the gold price.
Number three is geopolitical crisis. Strife can get priced in and out of the gold price.
We also believe that gold should maintain its purchasing power to oil. Over the last 40 years one ounce of gold typically bought 15 barrels of West Texas Intermediate oil. That ratio has been knocked down to about 13:1. I would expect some reversion closer to 15:1 this year. Taking that ratio in isolation would mean that gold is underpriced by about US$200/ounce (US$200/oz).
In 2013, the gold price was knocked out of whack with respect to other hard assets, driven by the 900-tonne liquidation in the gold exchange-traded funds (ETFs). The damage was probably a US$200/oz drop in the gold price.
We suspect that the massive amount of gold liquidated by the ETFs were driven by hedge funds and speculators. The gold ETFs have over one million investors, who for the most part have hung onto their gold holdings. It was the fast money that appears to have left and, therefore, we do not expect to see a repeat of last year from the rest of the investor base.
Between 2004 and 2012, the ETFs built up 2,600 tonnes of gold. Putting that into context, that made the ETFs the fourth largest holder of gold behind U.S., Germany and the International Monetary Fund. In one year, 900 of those 2,600 tonnes were liquidated. If a central bank the size of Germany’s liquidated 900 tonnes of gold in one year, it would have made a lot more headlines. ETFs are now the sixth largest holders of gold, after the abovementioned entities and Italy and France. So far in 2014, the ETFs are back into accumulation mode, which implies that the investors are once again seeking this asset class.
TGR: Wasn’t some of that 900-tonne selloff offset by gold buying in China?
RC: It had to be mopped up somewhere and, in our view China is a natural buyer. If China is serious about making the renminbi a global reserve currency, part of the formula to get there is to build up gold reserves. The U.S. gold reserve is about 8,300 tonnes. As far as we know, China has approximately 1,000 tonnes, hence we believe that China will need significantly more gold as a percentage of its foreign exchange reserves.
To put this into perspective, the whole gold market in a given year is about 4,300–4,400 tonnes. Approximately 2,500 tonnes come from new mine production; the rest is aboveground stocks moving around. Central banks, no matter how aggressive, can accumulate only in the hundreds of tonnes annually. Hence it could be a multidecade project for the Chinese to accumulate the gold it needs. The ETF liquidation last year would have been manna from heaven for China, allowing it to accumulate a few more hundred tonnes.
Jewelers also stepped in and bought gold on the pullback in price. As the Chinese middle class expands, the per-capita consumption of physical gold has increased.
The year 2013 was an anomaly. The 900-tonne selloff harmed the market to a large degree. Gold was due to go down last year on the back of a strong U.S. dollar. The herd mentality took the price drop to an extreme.
This year, U.S. employment and industrial production data are showing some cracks. That is strengthening sentiment for gold, and it’s funneling down into gold equities.
TGR: Ukraine, Crimea and Russia have been in the headlines. At the Prospectors and Developers Association of Canada conference, I spoke with Canada’s Foreign Affairs Minister John Baird. He said the situation in the Ukraine was the most troubling geopolitical situation since 9/11. Are you managing your funds differently in light of what’s happening there?
RC: Not at all. We estimate that the situation in Crimea added approximately US$50–80/oz to the gold price. The price hit $1,380/oz and has already come back down. Our view is that the crisis has now been largely priced out for the time being.
TGR: Your Dynamic Strategic Gold Class Fund, which is 57% vested in bullion, is up about 21% since January. Last year wasn’t as positive. How do you pitch your gold-based funds to investors?
RC: The Strategic Gold Class Fund, founded in 2009, gives investors a mutual fund that can own up to 70% gold bullion, and hence we view this fund as being well suited for those investors looking for gold exposure, but who are less comfortable with taking on the individual equity risk.
As far as the equity portion goes, we can expand and contract that depending on our view of the gold market. If the gold equities are building strong legs, we migrate the fund into gold equities by selling bullion and converting it to equities.
Typically, the fund is 30–70% bullion, skewed to the conservative side. Today, with 57% physical gold, we’re in the middle. Although the market has been strong year-to-date, we’re not ready to hand over all that bullion and put it into equities just yet. We have trimmed the gold position in baby steps.
Being in Canada, we also have the option to hedge or not hedge the Canadian dollar on that physical bullion. When the Canadian dollar is rising we are likely to hedge to give investors a better return. When the Canadian dollar is weakening, we want to have more of a U.S. dollar return. If you’re naked on the hedge, you get the Canadian dollar exposure. In other words, if the Canadian dollar has fallen 10% year-to-date, even without a change in the gold price, you would see a 10% gain in the gold price in Canadian dollars.
TGR: Do you see a lot of value in gold equities right now?
RC: On a broad level, many equities are trading near fair value at current spot prices. Some are more expensive, but it’s usually a case of paying up for quality. Some of the junior companies are lagging, but investors remain cautious and conservative. Sentiment has moved a lot this year, but there’s still way more liquidity in the senior companies.
Smaller companies, even those that have performed well in the context of the total market capitalization, might not come back so easily. The market is building legs very slowly and investors are being choosy, especially on the exploration side. Companies with interesting discoveries are generally doing better than those at the grassroots level.
TGR: One ongoing saga is Goldcorp Inc.’s (G:TSX; GG:NYSE) bid to take over Osisko Mining Corp. (OSK:TSX), which Goldcorp seems likely to win. What does that transaction tell potential investors in the gold space?
RC: I’m not sure Goldcorp will win. The timing of the bid has resulted in some interesting dynamics. In January, the gold price was starting to move up and the Canadian dollar was moving down. This strengthened the Canadian dollar gold price.
A company with less leverage to the gold price was bidding for a company with more leverage. Hence, Osisko’s year-to-date performance has been no better than its peer companies without a bid on them. Osisko is up 61% year-to-date. Kirkland Lake Gold Inc. (KGI:TSX) is up 59%, Lake Shore Gold Corp. (LSG:TSX) is up 65%. Osisko is trading in the middle of the pack and some investors could therefore argue that the stock may have performed better without a bid.
Part of the reason for this is that the bid itself is not an all-share bid; it’s CA$2.26 cash plus 0.146 Goldcorp shares. In January, had the gold price gone down, the Goldcorp shares would have gone down, but the CA$2.26 cash would have stayed the same. The cash would have represented a put option and made the bid look more attractive in a downward-trending gold market.
The opposite happened: The gold price has increased substantially and the cash component has gone the opposite direction. Instead of acting as a put option, it becomes a cash drag. The bid no longer looks as interesting, given the improved gold price. The market price is reflecting this, and the shares are trading above Goldcorp’s offer.
At the time of the bid most shareholders balked at the idea of tendering. Those who did sell probably lacked confidence that the gold price would continue to rise. The buyers would have been arbitragers.
TGR: Osisko has come out with a revised mine plan.
RC: The revised mine plan pegs a lot more value on the Osisko shares than they’ve been given credit for in the market. It puts pressure on Goldcorp to revise the offer.
I don’t know if Goldcorp will succeed. It depends on where the shareholding now lies. We don’t know how many shares have traded since the bid or to what degree. It’s in the hands of the arbitragers.
TGR: Is there a Canadian theme at work here? Osisko has a scalable Canadian project. The Canadian dollar is falling.
RC: I don’t see this as a Canadian theme, but one could argue that the low-hanging fruit in politically safe countries has been plucked over in the gold sector and it’s harder for companies to find world-class deposits in Nevada or Canada. Acquisitions are one way for companies to stay in countries that have very strong mining laws, where it’s relatively easy to permit.
My view is that the next generation of high return projects will likely pop up in West Africa or other jurisdictions with more political risk.
TGR: What metrics did you pay most attention to in the Q4/13 results reported by the gold producers you follow?
RC: I was interested in cash flow per share and the sustainability of those cash flows. We look at the quality of the cash flows on the horizon to capture a net asset value calculation. Two companies may have the same price to cash flow, but one has a significantly longer and more robust mine life, the other has high grades that are expected to drop after a certain number of years.
For development companies we look at internal rates of returns (IRR) on the projects and their economic robustness. Single-digit or low double-digit IRRs don’t interest us much. We like to home in on projects with higher IRRs. We own perhaps six development companies that we like a lot. Otherwise we stick with producers, about 24 names in the entire fund.
TGR: Are there silver companies among the gold?
RC: A couple. We own some Fresnillo Plc (FRES:LSE). Tahoe Resources Inc. (THO:TSX; TAHO:NYSE) is a significant holding. We also have a bit of Fortuna Silver Mines Inc. (FSM:NYSE; FVI:TSX; FVI:BVL; F4S:FSE).
Silver is a double-edge sword. It will outperform gold in a strong market, but in a weak market it could underperform gold.
TGR: What do you think of Tahoe’s Escobal mine?
RC: The Escobal mine is fantastic. The knock on that stock is the fact that the mine is in Guatemala. Before Tahoe built Escobal, the company came through a lot of challenges from environmental groups. But Tahoe got it built.
There are more than 360 million ounces of silver in this one project. A polymetallic silver mine is unusual. Escobal has zinc and lead. You don’t often find rock in the ground that’s worth more than $350/tonne. It’s really hard to come up with a higher quality investment.
TGR: Fortuna didn’t meet the Street’s expectations for earnings per share, but it’s having a good year. Is there more upside left there?
RC: We think that there’s upside left. Fortuna is well managed and it has a high-grade discovery in Mexico that will show up in near-term production. Some people will consider Fortuna politically safer. They might prefer Mexico and Peru over Guatemala, but that varies from individual to individual.
TGR: This quarter, small-cap precious metals equities have been the sector’s best performers. Are these types of companies the sweet spot right now?
RC: Yes, these names have done well in the risking gold price environment. As an example, Probe Mines Limited (PRB:TSX.V) has one of the better discoveries we’ve seen in Canada for a while. Its infill drilling results are coming in better than expected; that helped Probe go up 58% year-to-date. That story continues to unfold. I wouldn’t call it a slam-dunk just yet, but it is certainly worthy to be one of the 24 names we hold in the portfolio.
TGR: Can you share other development names you hold?
RC: Papillon Resources Inc. (PIR:ASX) is working in Mali. Orbis Gold Ltd. (OBS:ASX) has a new high-grade discovery in Burkina Faso. That is also where Roxgold Inc. (ROG:TSX.V) is working on a high-grade underground project.
All three have robust economics and are finding more gold through extensional drilling or satellite deposits, which will enhance the economics. These projects should all have fairly fast payback periods, robust rates of return on capital employed and strong cash flows. All would be potential takeover targets for a big company looking for the best quality projects. Just as importantly, even if they are not taken over, these companies won’t have problems raising the capital needed to build their projects.
TGR: Is it more likely that Roxgold will develop Yaramoko or that it will get taken out by someone bigger, like SEMAFO Inc. (SMF:TSX; SMF:OMX), which is next door?
RC: SEMAFO would be a logical buyer, given the proximity to its Mana mine. I would give a takeover 50-50 odds.
The three development companies I mentioned are also poised to develop their projects themselves. They can garner some really high rates of return and the projects aren’t overly complex.
The producers may wait until the mines are in production and have demonstrated that they work before paying up. However, there’s more meat on the bone for them to buy in early. The producers might give up some of that in the meantime while the companies continue to derisk their projects.
TGR: There’s been political tension in Mali, where Papillon is working. How much of a risk is that?
RC: Papillon is in the southwestern part of Mali right up against the border, more than 1,000 kilometers away from the unrest in northern Mail. We are relatively comfortable with the risk, given the distance.
TGR: What can you tell us about Orbis?
RC: Orbis is a new story. Its market cap is about AU$77 million. Its Natougou project is in Burkina Faso. It’s high-grade, 3.5 grams per tonne (3.5 g/t), and open pittable.
Orbis can run high grade for the first few years and get a very quick payback. The 3.5 g/t grade covers up the economics because of the high strip ratio. On the other hand, given that it is a flat-line deposit, there could be other opportunities.
TGR: What companies that might appeal to more conservative investors are in your fund?
RC: We scour the world beyond North American listings. We’ll look at stocks listed in London and Australia. That’s how Papillon and Orbis came into our fund.
Randgold Resources Ltd. (GOLD:NASDAQ; RRS:LSE) is a key investment for us. It has a $7 billion market cap and has consistently delivered.
We also own Goldcorp and Franco-Nevada Corp. (FNV:TSX; FNV:NYSE), which are both quality North American names.
TGR: Franco-Nevada just announced a 10% increase in its dividend. What did you make of that news?
RC: It’s positive news. I’d like to see more companies, especially royalty companies, raise their dividends if they can. It might bring a broader range of investors into the stock.
Generally speaking, gold companies pay low dividends. If we can maintain a solid gold price for a couple of years, companies that can afford it should pay stronger dividends. I’d like to see them all pay dividends north of 2%.
At this time, many of the miners recirculate their cash flows to build other projects, some of which have lackluster returns.
TGR: Randgold announced earlier this year that it is debt-free, but that it will plow a lot of money into exploration. What did you make of that?
RC: Randgold has $50–60M budgeted for exploration in countries like Côte d’Ivoire. It is also looking at land near Papillon’s project in Mali. The company has strict criteria for its exploration portfolio and has historically generated value through exploration, so I am not opposed to them spending money on additional exploration.
By next year, Randgold will be into the cash flow harvest mode. It will have money for both exploration and a dividend enhancement. I would expect Randgold to have one of the leading dividend yields in a couple of years.
TGR: Could you blue-sky gold for us?
RC: Gold is still sporting a few of the bruises it got last year, although they are healing. Without any change in world affairs, we believe that the gold price could rise US$100–200/oz.
There is fairly positive economic data coming out of the Western countries and overall strength in the broader stock market. Any significant catalyst that will erode fiat money purchasing power, such as falling industrial production, more unemployment or broader trade deficits, could take gold much higher.
Gold moves when you least expect it. Investors should always have some gold in their portfolios for insurance. That’s the main purpose of owning gold.
Profitability is the important thing for gold miners. Profitability is not only dictated by a gold price, it’s also dictated by cost levels. As long as the gold price behaves well with respect to cost inputs such as energy, oil, steel, chemicals and labor, there’s a profit margin to be eked out. For more than 40 years, the gold price has been well behaved with respect to all of those input costs. Last year was an anomaly. I think we are now seeing the profit margin being restored.
Capital markets are also being more generous. Companies that have quality projects will have no problem accessing capital markets, be it equity or debt.
TGR: Robert, thank you for your time and your insights.
A mining and mineral process engineer by training, Robert Cohen is vice president and portfolio manager for GCIC. His experience in the mining industry is extensive and includes work as an engineer and a corporate development adviser for an international gold mining firm. Cohen completed his Bachelor of Applied Sciences in mining and mineral process engineering at the University of British Columbia in 1992. In 1998, he received his Master of Business Administration and, in 2003, he received his CFA designation.
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Capital Trust Markets – Expect considerable volatility in the strength of the Australian dollar on Monday evening as a host of key events look set to shape a medium term bias in the outlook for the currency.
First on the schedule is the much-anticipated Chinese purchasing managers’ index (PMI), slated for release at 21:00 EST. Consensus forecasts the figure at 50.3, a small increase on the previous month’s 50.2. Forty-five minutes subsequent to this release, HSBC will release its counterpart figure, with consensus forecasting HSBC manufacturing PMI unchanged at 48.1.
China has as-yet failed to divert investor attention from a potential economic slowdown, with data released throughout the latter half of March simply serving to compound the bearish outlook for the Asian superpower. A downside surprise in either release would cap off a month to forget, and likely serve up some AUD weakness as throughout the Asian session and heading into the European morning. Australian Prime minister Tony Abbott has done his best during the past two weeks to downplay any claims of Australian collateral damage in response to a Chinese slowdown, but politics aside, the fact remains that Australia relies on China for a majority portion of its export revenues. China also holds large investments in a number of Australia’s leading mining organizations, offering up the potential for a decline in sector specific employment in the wake of waning foreign demand.
Shortly after, the spotlight will focus directly onto the Australian economy, as the Reserve Bank of Australia takes the stage to report its latest interest rate decision and its accompanying statement.
Market consensus looks to favor a rise, or at the very least a hawkish statement, suggesting that, for now at least, the RBA is not concerned about any potential Chinese impact. The AUD strengthened versus the USD last week, with the pair posting its biggest one-week rise in two months. The gain broke the pair through its 200-day SMA, suggesting the longer-term downtrend may be weakening.
An interest rate hike (or a hawkish statement tone), coupled with an upside surprise in the Chinese data could carve out fresh yearly highs in the AUDUSD, with a close above in term resistance at 0.9280 validating an initial upside target of September/November resistance at 0.9435.
Conversely, disappointing Chinese data and a dovish statement tone (unlikely) will likely offer up some short-term weakness in the pair. Look for aforementioned resistance to hold and a break towards in-term support at 0.9155.
Written by Samuel Rae – Currency Strategist at Capital Trust Markets
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EURUSD is at new high of the day, now in third leg of recovery from the low. The question is if this can be wave (iii) of an impulse, heading up to 1.3830/50. To soon to confirm but if we get an extended rally I would be interested in EUR longs. Move back beneath 1.3724 calls for a new leg down to 1.3700 before bottoming.
EURUSD 1h Elliott Wave Analysis
GOLD is at new swing low of the day, now looking like a completed running triangle in wave iv) so price could extend losses down to 1280 within wave v). 1298 should hold now, otherwise it’s not a triangle.
GOLD 1h Elliott Wave Analysis
Written by www.ew-forecast.com
