Gold’s Turn in the Sun - Part 2

By Neil Charnock
www.goldoz.com.au


Gold has broken out to the upside and it appears decisive (I will be convinced if it holds as I expect) – and right on schedule too. The “what ever it takes” bail out talk from the USA is certainly assisting gold at this point as is all the new Central Bank money creation on a global scale. Capital is leaving the USA for safer destinations like Australia too. Currency volatility is evident and the uptrend in the AUD is still intact so this is an excellent mix for mining and investing in mining in Australia. Australia is one of the few key mega – low sovereign risk mining centers on the globe – a vibrant modern mining economy.

I penned an early call in this gold break out on the 27th August when I stated - “I am not shy to state that I predicted, back in January, a strong rise to begin in gold and silver this year. However I thought it would not begin until the second half and now as we approach the end of the gold pennant formation on the gold chart I favor an upside break. We are now likely to see a period where the precious metals make it to the mainstream investment arena. Not all at once though as in all bull market legs they start slowly and gradually build.”

Silver is lagging gold just like it did at the beginning of this gold bull however do not write off silver – it our performed gold in the 70’s. As the tremendous & persistent concentrated short position in silver unwinds (well documented thanks to the wonderful Mt Ted Butler) we move closer to a break in silver too. For now let us take a peek at the shudder effect or after tremor of the recent cracks that visibly appeared in our financial system - as they widen slightly. I believe the recent events have highlighted the systemic imbalances and critical weakness in the fiat system for all to see. Before this point it was a matter of logic, history and analysis - that was not shared by all.

A whole generation of younger investors and fund managers are looking on and some if not many must be starting to question and revisit some old wisdom. They are an extremely bright crop of individuals who have made it through a vastly changed education system and emerged on top – they embraced the modern mantra of success and also the modern financial fashions this past 10 – 15 years in a very competitive environment… in the era of the computer model and derivatives.

In my article on the 27th August I also stated - “The recent sub prime crisis marked a very significant shift in global markets. This shift has been expected by the gold community for several years now. We have spoken of systemic imbalances and also warned about the property sector / bubble for years now. The first major crack in the mainstream investment world has come at last and it was heard around the globe. It may not have been recognized as such as yet however that is what it was.”

Many have not recognized or accepted it yet however confidence is weakened such that new questions are being asked in these circles – these are like seeds searching for fertile ground - for the gold market. In time I believe the recent credit market events will be recognized as a turning point, not in the development of Asia or emerging economies, but as a reality check for the whole monetary system. The old reality rug also just got pulled out from under the “my program is bullet proof” illusion and also blind faith in the “property always goes up mantra”. This is making the man on the street question things too – he is more scared, his illusion of wealth and never ending home equity rises are dissipating in many areas – more sure to follow.

A thick veil of fog just lifted for the younger generation of investment players so we shall see how fast they move and just how bright they really are shortly. Wise heads have been in gold for some time and are turning to gold – will the funds jump in sooner or later is the question? This will determine how large this leg will be. They have a far greater chance of noticing gold now for one key reason – let’s keep this simple – RISK now enters their world to a far greater degree and that is healthy for the capital they manage and for the precious metals plus and miners that produce them.

In Part 1 of the Weekly GoldOz Newsletter this week Colin had a heading – GOLD –Is it waking up – Is a breakout brewing? And then this comment – “So also watch for a break of those crucial points at $US 685.00 and $US 692.50 – as I have said before this will get some volume and momentum in for a move to above $US 700.00 and potentially new highs. I still favor the break to on the topside but watch and see how the beginning of the weeks starts the test of these points”.

GOLD – COMEX December 07



“We have moved above my inner upper triangle resistance line 2 at $US685 and just below my outer triangle line 4 at $US 692.50 – note I have added a horizontal resistance line 5 at $US 695 here from a chart a while ago – so a heavy resistance area – but if we break through the lower two I don’t think line 5 will give too much resistance but it will confirm the main break if breached. Then we will see a move towards the previous highs at $US 720 / 725.” Well it is now sitting high and dry above all but the upper resistance levels at the highs of May 2006.

OK so we have done our bit to inform about the opportunity at hand and before it happened more to the point, but also the recent dangers and how to handle them too but what now? We cover the mining boom in Australia as well as the major world markets, metals and even currencies at times which we believe is a value package – so let’s take a look at the ASX Miners for you now.


S&P 300 – ASX 300 Metals and Miners Index.

Colin had this to say this week plus some very important statements about the short term strategy to buy resource stocks – which includes the gold miners. “The ASX Metals and Miners had the big correction we were looking at – a full 75% - 100% pullback of the last move up from breaking the box – a bit deeper than we first expected but the attack of the sub – prime than came into the equation – now we have had a great bounce back – also as called… much more for subscribers - but you get the point. Look at the uptrend and the opportunity down under as a safe haven for US Dollars parked around the world. The same applies for other non – resource currencies and USD pegged currencies. Timing issues covered in the Newsletter must stay there to protect subscriber interests. Here is the basic picture though, take a look at another bull market in action.



I update a chart set for my spreadsheet clients, as a free extra, on a regular basis and want to share one with you here… it is based on the AUD price of gold and take a look at the RSI to price divergence action through June - July before gold took off in AUD terms recently. The chart is of our Gold EFT on a 12 month scale. Each share is equal to 1/10 an ounce in AUD terms.



The action of the resource leaders I follow in this product leads me to believe a break is nearing however not quite here yet for all. The signals are setting up nicely and this is bargain territory for many however make no mistake. The smaller stocks have some breath taking opportunities and the stocks are group charted as two different indexes at GoldOz as a free service. They did show an excellent attitude this Friday - on the gold break out which is a further indicator – stock behavior now and over the past several months is evidence of savvy accumulation on a large scale. Just now I am also seeing large buying at “ask” and at times without supporting depth – all sorts of positive patterns, selling drying up etc… and strong moves. These ASX Gold stocks are getting into strong hands ready for this rally to light up our screens Down Under. There are all sorts of company specific developments of importance for this sector – a great deal of activity.

Just now I am observing some end of week profit taking. I have an excellent time saving and informative PDF set on the ASX PM miners if anybody is interested – once of purchase is AUD$35 and covers well over 300 stocks – it is an introductory tool suitable for any investor. An annual version with 4 deliveries is only $125 – stay tuned over this new gold up-leg.

I urge more company directors to subscribe to our Newsletter as an official guide by Colin who is one of the elite few leading mining analysts in Australia. A valuable second opinion for all investors too – sorry all annual discount subscriptions now gone – a few 3 and 6 month discounts left - just a handful so be quick if you want a bargain introduction to this service. A huge bumper edition at the store now – 3 Parts and very important data you should all have without fail if you have any interest in Australian mining.


Good trading / investing.
Regards,
Neil Charnock



REGISTERED ADVISOR – WHO THE ADVICE COMES FROM IN THE GOLDOZ NEWSLETTER:
Colin Emery is currently a Branch Manger and Senior Client Adviser of a Stock Broking Company in Queensland Australia. Prior to his work in Share broking he spent nearly 20 years in Senior Management and Trading positions in Treasuries for major International Banks such as Bank Of America, Banque Indosuez, Barclays Bank, Bank Of Tokyo and Deutsche Bank AG. He spent a number of years as a Senior trader in New York, London, Singapore, Tokyo and Hong Kong with these institutions. He also was Global Head of emerging energy, emission and commodity products for the leading Energy and Commodities brokerage firm of Prebon Yamane Ltd – Prebon Energy for four years before moving to Cairns in 2003 to focus on the Stock market and Private consulting work. The private consulting and advisory work currently undertaken is with companies involved in Resources, Energy and Renewable Energy and Forestry.
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 my current opinion only, further more conditions may cause my 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.