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Keeping Up Consistency: Gold Outlook

Having returned to these ShareCafe pages, my main aim is always to be consistently correct in my views, not to be consistently writing articles. I am sure readers would rather read a handful of articles that are all correct rather than a copious amount where only a few random predictions come to fruition.

In my first two columns after a lengthy absence, I emphasized two key messages. First I expressed my grave concerns for the housing, banking and retail markets and we have continued to see this space weaken. For example, CBA has dropped 8.7% since my first column a month ago and today I just want to quickly warn that this is not yet a buying opportunity. My concerns run well into 2018 so when you see drops like this think twice or three times before jumping in.

My last column reflected on rare earths and the upcoming boom of building charging infrastructure to accommodate the transportation revolution. The US rare earths ETF (REMX) has risen 15.7% in the past two weeks and my favourite stock of the moment Lynas Corp (LYC) has jumped 33% over the same period. I hope readers have profited as a result but like my bearish outlook on banks above, this boom is only just getting started. Translation: you haven’t missed the boat at all.

Today, I wanted to highlight gold. Like many I have been an underlying gold bull since late 2015 as my old columns will highlight, but have been frustrated by the lack of momentum that the bullion price and gold stocks have experienced. Where is the boom?

Well I am encouraged by some of the recent developments both from a technical and circumstantial point of view, leading to me increasing my exposure to the metal and listed producers. Circumstantially we have issues of North Korea and the huge refugee crisis affecting way of life across Europe, the constant threat of terrorism that create the “interest” in buying gold. The US dollar as shown below via the US dollar index has hit its lowest level in two and a half years, increasing the value of gold in US dollars. Previously the strength of the US dollar had been a major headwind for gold capping gains.

This has now translated to some solid momentum in gold prices and the potential for US$1400 to be surpassed. This is the major significant level for me that will trigger a more aggressive exposure to gold. The weekly chart below shows the resistance that exists across the $1400 level which stretches back to 2013. Upon a breach of this level a huge 3 year base will be complete and provide the platform for a much more aggressive trend higher, much like what we saw in 2009-2011 after gold finally broke above US$1000.

Gold stocks are on the move in the US with the Gold producers ETF (GDX) also rising from a low base that suggests a lot more is in store for gold, provided the underlying price can move beyond the $1400 level. Currently testing some minor resistance at US$26, I would expect this ETF to be testing the US$32 level at the same time gold is touching $1400.

Local gold producers are a mixed bag. The rising Australian dollar is a headwind for locals, while the performance of specific mines, debt levels, location etc are all key factors in determining whether a locally listed gold producer will participate in any gold boom or not.
At the moment only a handful are moving with the gold price. Northern Star (NST), Regis Resources (RRL), Saracen (SAR), Newcrest Mining (NCM) and Resolute (RSG) are the primary leaders. We currently have exposure to the GDX ETF and Regis Resources (RRL) but am watching the above list (plus gold obviously) for further positive developments.

I think it’s a time to begin focusing on the performance of gold stocks. Positive signs and global conditions are moving in favour of gold improving over time. While I am nowhere near as bullish on gold as I am on rare earths, it is another better area to park your money and assets than in the traditional and now high risk, vulnerable areas such as the banks, property and retail.

View More Articles By Greg Tolpigin

Greg is the Head of Proprietary Trading at Global Prime and has over 20 years of experience as proprietary trader and high level strategist for the major investment banks including Citigroup, Bankers Trust and Macquarie Bank. He has been involved across all asset classes including commodities, bonds, currencies and equities right across the globe.

After a 10-year career within the comforts of the large investment banks and research firms he branched out on his own to form his own proprietary trading firm successfully building the business into a multi-million dollar trading operation that turned over a billion dollars a year. This same team now runs the proprietary trading desk at Global Prime, risking their own money in line with the firm's and client's capital.

Greg has appeared on CNBC, Channel 9 - Business Sunday programme, a guest columnist for the Australian Financial Review, a regular author for Personal Investor, Wealth Creator and Shares magazine and is the former Treasurer of the Australian Technical Analysts Association.



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