Exciting Gold Stock Performance Down Under

By: Neil Charnock | Mon, Nov 16, 2009
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I have just completed a major overhaul of my chart set which correlates with my coverage of the Australian gold sector. It is news analysis time as I have been updating news from the end of the October releases of the September quarterly reports.

This is an intense time of the quarter for my overall company research covering the gold sector Down Under and although it is a massive undertaking to handle properly it is well worth the effort.

I also just updated my ratings tables using the new data so this is an ideal time to write this kind of article to report on the general market performance. It is also a great time to review my own performance although with great humility I have to say that this has been a spectacular time these past few months for my members and my own trading / investing activities.

This article is a score card of sorts and it does cover our own listing results in our Members and Gold Members area at GoldOz. This is discussed only for the overall purpose of describing what has happened in the Aussie gold stock sector this past several months. I have broken up the performance into each of the sub sectors of the Australian gold sector to show how broad and deep this gold stock rally has been. We have not seen action like this since the second half of 2005 in the lower ranks.

I also cover the AUD gold price because this is something I get asked about often. Offshore nvestors who listened and brought money into Australia earlier this year have made money on the exchange rate and the stocks - a double whammy bonanza. The gold stock performance detail is interesting to gold stock bugs like me as it tells a story in itself. Those of us that have been with this rally since 2001 will know what I mean and if you are newer to this opportunity then this is a chance to learn some more.

Now to the Score Card

We cover 25 larger producers, 19 mid-tier producers and 14 smaller producers and we rate them by production volume. The larger producers had 11 trading in a range this past few months but only two of these were in our short list. 11 more were in an uptrend and we had 7 of these in our short list - 5 have shown a positive divergence at present and 4 of these are in our short lists also. This latter group can be found by your own research if you look hard enough and are highly likely to perform strongly into the first half of next year.

We have one major merger in this sub sector and one delisting to the main board in London and we are sad to see this stock go. We have a few "lowest cost" quartile producers in this category but the ones to watch will be the mid to higher cost producers that are reducing their costs steadily. This is because as the AUD gold price rises their margins rise in percentage terms at a faster rate than the lower cost producers.

When the POG in Aussie dollar (AUD) terms rises these will be the major beneficiaries. I will cover the AUD gold price later in this article as it is getting very interesting - but for the many lower to medium cost producers an AUD$1200 POG is highly profitable.

The mid tier producers have done even better than their larger cousins with only two ranging (we covered only one of these) and 9 appreciated within solid up-trends. We included 5 of these in our short list and got a surprise or two ourselves. Loads of organic growth here and some serious out-performers and we covered one of the most successful with a special educational report which has been widely circulated.

The exciting aspect of this sub sector is the 5 stocks showing a positive divergence and we had 4 covered here too and looking to include the 5th. There was only one negative divergence and two that went down and we missed all that in our short list. We just included one of the falling stocks because we feel it has limited downside and great fundamentals.

The smaller preducers are mostly small scale and we scored 3 of the 6 that went up and only one of the 5 that ranged. Three went down and sad to say one was on our short list.

Before we look at the large and small developers I want to take a look at gold in AUD terms and clear something up. Some people get confused by AUD$gold and USD$gold etc but it is really simple. It is only the ratio between the currencies that changes this price nothing else.

The ideal proxy for the AUD gold price is our gold ETF that goes by the ASX code GOLD. Here is the daily chart with duration of one year.

This gold ETF trades at 1/10 of an ounce per share so multiply the price of each share x10 if you want the AUD$ Price of Gold (POG). The top circled price area coincided with a USD gold top of almost USD$1000 back in February but the AUD had plunged to 64.62c against the USD at that time which was approximately its low for the year. That AUD gold price top was a spike for many of the large producers above and the lack of follow through is responsible for the ranging patterns in many of these ever since.

Moving forward we saw a major divergence in price to RSI from April to July this year and the April plunge coincided with a low cross over on the MACD. This began a long base formation which is only breaking up just now. This is extremely bullish for the AUD gold price and our gold sector and helps explain the excellent performance of many Australian gold stocks lately along with the positive reversals I see forming.

There have been two other positive divergence patterns on the chart above also pointing the way to a trend reversal which can only mean two things. Either the AUD drops faster than the USD POG in a correction or gold accelerates faster than the AUD from here on out. Given that the AUD is getting toppy now at over 93c but with a little more upside thanks to the USD carry trade and highly attractive local investment conditions I see the latter as the most likely.

Gold has to take a breather shortly but the rally is in full swing and a February to May top in the XGD out there is likely - probably in both February and May. I am not suggesting a long term top just a moderate correction within the uptrend out in February to May 2010. The XGD (Australian Gold Index) is currently trending up in a channel and many of these stocks are still very cheap so this channel can easily continue to guide this trend upwards.

The large developers we follow have been spectacular with 17 up, 5 ranging and only one down. We short listed 8 of the gainers and have just added another. We only selected one of the 5 that ranged for our short list and unfortunately selected the only faller in the short list too. There is only one billion dollar stock in this category but there are plenty with significant upside and potential scale including one we recently featured at the top of our RSI performance table which has just shot up over 50% over the past few weeks.

I have to admit that I was not particularly interested in the smaller developers and explorers a few months back but we did select 4 of the 10 risers in this category and missed all 5 of the ranging stocks. We did not short list the only fall either showing the value of our analysis. We also have one short listed positive divergence listed in this category. I have been surprised by the strength of this sub sector given the under performance of several of the major large producers. The credit markets opened up in full to these companies also reducing investor risk and propelled these projects forward with gusto.

This is highly bullish and we do point out that even our long list which describes all of this action has been selected from hundreds of stocks that we rejected.

Finally the explorers and we mostly choose only those with a real JORC resource and a potentially tangible project outcome. 17 went up and we short listed 9 of them as potential out-performers but we missed 8 of the 11 that ranged sideways which was great. We short listed the only faller in this category however - this is part of investing and the reason you never put all your eggs in one basket.

Overall the performance of the Australian gold sector has been brilliant and if the AUD gold price heads north as I expect we may see even better times - I certainly hope and expect so. I just wish I had a bigger truck to back up but keeping your feet on the ground is the key to safe trading.

I still see some choppy action providing exactly the buying opportunity I have been waiting for. By covering the range of stocks we do there are always some rising and some correcting within the overall trend. Perhaps a little additional opportunity directly ahead if gold takes a breather on its way to US$1200 and the funds lighten up a little more into Christmas. December will certainly offer some quieter reflection time and a chance to pick up some more companies before the expected flurry into February and May next year.

Our bonus time offer is nearly over now for GoldOz subscriptions as this deal only runs to the end of November. I will hold this offer as promised and suggest that if you want in then you might want to do it pretty soon. The same goes for these stocks - do your homework and you can make bucket loads of profit.

Good trading / investing.




Neil Charnock

Author: Neil Charnock

Neil Charnock

GoldOz offers major points of difference to many services. We offer education for all levels of investors including a Newsletter, gold stock comparison tool, an educational portfolio and a running commentary on the gold sector. We have expertise in debt markets and gold equities which gives us a strong edge as independent analysts and market commentators. GoldOz also has free access area on the history of gold, links to Australian gold stocks and miners plus many other resources.

Neil Charnock is not a registered investment advisor. He is an experienced 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 his current opinion only, further more conditions may cause these 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.

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