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Tough times for Gold Prices, Mining Stocks & the ASX 200

April 18th, 2013 · Greg Atkinson · 36 Comments

It has been quite a week with investors needing to digest the slump in gold prices and also the weakening of commodity prices as well.  Although I have been warning about both a gold and commodities bubble for some time,  I have to admit I didn’t expect the gold price to fall back quite this much, this early.

Having said that, I have stated on many occasions that the high gold price worried me because once the selling started it could turn out to be a rush for the exit.  The gold bulls will pull out some of the usual stories about gold demand from India to try and calm themselves, but the reality is that if investors keep pulling funds out of gold ETF’s and central banks offload  gold as well, then gold prices will keep falling.

As I wrote at the start of the year, I expect gold to finish the 2013 closer to $1000 USD an ounce than $2000 and at current exchange rates, the same could be said for gold in AUD terms as well.

In any case, Gold in AUD terms has been moving downwards for months as we can see reflected in the chart of ASX listed GOLD below.

Exchange Traded Fund (ETF) GOLD – 6 month chart

etf_gold_6_month_chart_apr_2013

Even before the recent sell-off, ETF:GOLD had fallen from over $160 to around $145.  Some of this decline is related to the AUD/USD exchange rate and some due to investors moving to higher yielding assets, but over the last few days the price falls have been fairly savage.

I am not going to attempt to make a short term call regarding gold – the market is just too volatile for that – but rather I will simply stick to my long term forecast for the gold price as mentioned above.

Of course as gold prices have fallen, so have stocks in the gold miners.

Newcrest Mining Ltd (ASX:NCM) 6 month stock price chart

ncm_6_month_chart_apr_2013

Newcrest Mining shares for example have been on the slide for some months. In addition they have been sold off not only due to the fall in gold prices but also because of lower output from their gold mining operations. (this hit the share price in late March/early April)

But it isn’t just gold prices that are falling.  Copper, iron ore, aluminium & even silver have all been caught up in a fairly broad-based fall in commodities prices. As a result mining stocks have also been falling for a few weeks.

Rio Tinto, Fortescue Metals & BHP Billiton – stock price movement

rio_fmg_bhp_6_month_chart_apr_2013

Miners like Rio Tinto (ASX:RIO) Fortescue Metals Group (ASX:FMG) and BHP Billiton (ASX:BHP) rallied last year as once again the market appeared to over-react to even a hint of good news.

No matter how many warning signs there are indicating that the Chinese economy is facing a lot of challenges, it seems the markets are willing to ignore them all on the back of a snippet of questionable official data. This pattern of behaviour all  but guarantees some bumpy times ahead for mining related stocks.

Overall the wider Australian stock market has held up fairly well thanks largely to the banking and finance shares plus stand-out stocks like Telstra. But as I said some weeks ago, the market would fall once it breached 5000 (as it has many times before) and that is what has happened.

S&P/ASX 200 Index (XJO) 6 month candlestick chart

asx200_6_month_chart_apr_2013

Finally let me sneak in a chart of the Baltic Dry Index

Baltic Dry Index 5 year price  chart

baltic_dry_idex_april_2013

The Baltic Dry Index like all economic indicators, has its weaknesses and shortcomings, but around 90% of global trade by volume is carried by sea so it is well worth watching the BDI as I have stressed on more than a few occasions.

At the moment the BDI is below its long term average and way below levels seen just before the GFC. As long as it remains below 1500 I will remain wary of commodities and  mining stocks plus treat any talk of a sustained global economic recovery as wishful thinking by the IMF, Reserve Bank of Australia and confused economists.

Greg Atkinson is the editor of Shareswatch Australia and Managing Director of Ohori Capital. He currently works & resides in Japan.
He can be followed on twitter via


36 responses so far ↓

  • 1 Biker // Apr 20, 2013 at 7:23 am

    Interesting too, that investor sites which previously touted gold as the answer are now re-examining the logic of that proposal:

    http://www.fool.com/investing/general/2013/04/16/gold-collapse-the-beginning-of-something-big.aspx

  • 2 Richard // Apr 21, 2013 at 10:07 am

    Sorry I may have missed it, but what do you predict for the S&P ASX200 index for the end of calendar 2013 ?

  • 3 Greg Atkinson // Apr 21, 2013 at 4:31 pm

    Hi Richard – my call is for the ASX 200 to end between 4800-5200 as per this post: Australian stock market outlook & forecast for 2013

  • 4 Richard // Apr 21, 2013 at 5:30 pm

    Thank you Greg,
    Its a conundrum to me that US markets are now equal to or just surpassed pre GFC levels and yet we are still something like 25% below pre GFC levels.
    Is US overvalued, or Aus undervalued.
    Also as well as our own market fundamentals we do tend to follow what happens overseas so I wonder whether we will take more of a lead from European woes or US which is more upbeat.

  • 5 Greg Atkinson // Apr 21, 2013 at 7:12 pm

    Richard the U.S. stock market has been given a major boost from low interest rates and the QE measures take by the Federal Reserve Bank. The Japanese stock market has also received a similar lift over the last few months due the actions of the BOJ (Bank of Japan) which is also in the process of pumping money into the economy.

    Our stock market, particularly the ASX 200 is essentially driven by resources related stocks and financials. This means the Australian stock market generally is pushed/pulled along by overseas developments (such as Chinese GDP) and commodities prices or such things as local consumer spending, housing market data and business confidence surveys etc.

    Is the U.S stock market overvalued? Well I would say it was, but then again if the U.S. economy is able to pick up later this year then maybe the market will keep rallying?

    As for the Australian stock market, for me it is really a commodities/China play now and so from my point of view I think it is probably priced about right taking into account the risk of a further slowdown in the Chinese economy.

    But there are plenty of people, probably much wiser than me, who reckon the Chinese economy is rebounding now and will grow strongly this year thereby pushing up commodities prices again. If that happens then the ASX 200 could easily push up from the current level by another 10-15%.

  • 6 Lachlan // Apr 22, 2013 at 5:25 pm

    “But it isn’t just gold prices that are falling. Copper, iron ore, aluminium & even silver have all been caught up in a fairly broad-based fall in commodities prices. ”

    Greg I felt the 5000 mark was a good place for a normal (eg 10%) correction but I have to be a bit more bearish now with the action in gold. Following on from your comment here I think silver is worth watching for further falls. It’s weak sideways price action is calling for further downside. Not sure about gold…it had a good support here already but who knows? We also will have to all sit back and wait to see if the financials etc are to join in…if that is what is destined to be. All in all an interesting time for market watchers. cheers

  • 7 Lachlan // Apr 22, 2013 at 5:29 pm

    Worthy of some note for commodity lovers that the DOW/Gold ratio has just reached resistance after a spending a while climbing back up.

  • 8 Lachlan // Apr 22, 2013 at 7:14 pm

    http://www.bloomberg.com/news/2013-04-17/central-banks-find-stimulus-glitter-in-gold-slump.html

    “Central banks can be opportunistic and proceed with quantitative easing now the gold market is surrendering with regards to its hyperinflation fears,” said Edward Yardeni, president and chief investment strategist at Yardeni Research Inc. in New York. “They could also argue the weakness in commodity prices suggests a growth concern and so all the more reason to keep QE going.”

  • 9 Greg Atkinson // Apr 23, 2013 at 4:10 pm

    Lachlan today the ASX All Ords/ASX 200 rose despite a weaker than expected PMI number out of China which makes me think further falls are on the cards. Eventually I believe the reality of lower copper, iron ore, gold prices & a slowing Chinese economy are going to drag the Australian stock market lower.

  • 10 Ross T // Apr 26, 2013 at 10:07 pm

    The US mint has run out of gold coins, the germans want their gold back and the rumour is that the fed has dumped 500 tons (yes tons!) in a naked short to push the gold price down. IF true I reckon they are in big big trouble this time when it comes time to settle – i reckon they dont have the gold!

  • 11 Biker // May 15, 2013 at 3:22 pm

    Resources boom is truly over, says Focus Minerals chair Don Taig | The Australian: http://t.co/1hEnR2HEdt

    Don, how can that be? An authority on the very areas you’re mining has commented (30/1/’11):

    “I bought more Focus on Friday. With more drilling at the what could be well named “treasure Island” site in the first quarter and my expectations of the gold price to recover lost ground the expected jump to 12 cents could be but months away… One of my research tools/sources gives them an intrinsic value of 33 cents already…”

  • 12 Stillgotshoeson // May 15, 2013 at 9:17 pm

    Wow Biker, unususl for you to be posting a link to someone agreeing with what we have been saying all along.

    Do you agree with him or disagree?

    As for the second past of your post, I have since revised my target price and explained as to why.. if you can not understand the rationale behind that then your OCD, blinkered view on the forums is being highlighted more and more with everyone of your posts.

    I will try and explain one more time, just for you, Biker as I know your understanding of shares is limited.

    If the review of the company is that it will have a_potential_ capitalisation figure amounting to 33 cents a share and then some time after that company now has twice the number of shares on its book due to an equity raising then naturally the expectation of the figure would also halve.

    The expected value of the company into the future has not changed, just that it is divided between more shares.

    Shoes, Perth.

  • 13 Biker // May 18, 2013 at 9:00 am

    Ring any warning bells?

    http://www.fool.com/investing/general/2013/05/15/the-desperate-deceptive-measures-penny-stock-scamm.aspx

  • 14 Stillgotshoeson // Jun 6, 2013 at 5:52 pm

    ASX200 has fallen below 4800 and the dollar below 95US.

    Will the trend down continue for the rest of the year with an uptick post change of government?

  • 15 Matthew // Jun 6, 2013 at 6:07 pm

    Stillgotshoeson // Jun 6, 2013 at 5:52 pm

    ASX200 has fallen below 4800 and the dollar below 95US.

    Will the trend down continue for the rest of the year (NO) with an uptick post change of government? (INEVITABLE)

    Just my opinion.

    Last RBA cut was a direct target to take the heat out of the A$ and has done its job, but with no real need to cut again despite the “expert” opinions, it is bouds to crawl back toward parity over the next 8 weeks.

    ASX200 got to 5,000 quicker than I thought it would, and now sits about where I thought it would be by now.

    I see nothing in current moves to startle me any more than the rapid rise made me rub my hands with glee. It just is what it is.

    However when Gillard and the rest of her circus is out the confidence will indeedreturn, but with a 4-6 month lag IMO

  • 16 Greg Atkinson // Jun 6, 2013 at 6:54 pm

    Stillgotshoeson I think we will basically move within the 4800-5200 range with maybe a dip down below 4800 when some weak numbers from China come through.

    I think we have already got the change of government bounce and further RBA rate cut(s) will give stocks some support but I doubt we will be heading much past 5200 this year.

  • 17 Biker // Jun 13, 2013 at 11:22 am

    WA job losses Mount:

    http://www.skynews.com.au/businessnews/article.aspx?id=879433

  • 18 Stillgotshoeson // Jun 13, 2013 at 6:39 pm

    I read that in a different paper, thought it was great news and put an order in for another 500000 @ .012.

    Someone else has thought it great news as well as there is an order ahead of mine for over 11000000 @ .012

    I have continued to add FML to my portfolio as the price has headed downwards.

    I still see value in them in the near to medium term for them. Also has brought the average price paid down

  • 19 Biker // Jun 13, 2013 at 6:53 pm

    Congratulations, Shoes.

    You’re obviously sure you’re buying value. I guess you’re also buying the other gold miners which have fallen recently, in your first and second $100K portfolios.

    Looking forward to your next _second_ portfolio report. Why not also post progress in the first one?

  • 20 Stillgotshoeson // Jun 13, 2013 at 7:42 pm

    There is only 1 Portfolio. It will be updated at month end. Waiting on a stock update and might be making changes to it.

  • 21 Biker // Jun 13, 2013 at 7:53 pm

    “My Gold Mininer (sic) positions are..

    Citigold 400000 shares @ 8.5 c

    Lihir Gold 10000 @ $2.98

    Gold One 100000 shares @ 28.5c.”

    [27/2/2010]

    To think I once praised you for your honesty…

    Pre-50 Alzheimers? Surely not? 😉

  • 22 Stillgotshoeson // Jun 13, 2013 at 8:32 pm

    They are_part_ of personal holdings, not the 100k portfolio…

    Personal holdings include a range of stocks including precious metal miners. Some are up, some are down and some pay me nice dividends and you have no idea what is in it. You only know the few I have posted up.

    You continue to highlight your poor comprehension skills….

  • 23 Biker // Jun 14, 2013 at 8:33 am

    Hmmm…. so these other holdings you haven’t told us about are making you money? Strange that, as you posted: “Only 3 of my stocks are still above purchase price. All the rest are down, percentages vary. Paper dollar value of losses from end of financial year position is $80k…” 16/5/2012.

  • 24 Stillgotshoeson // Jun 14, 2013 at 9:55 am

    A stock can drop in value and still return quarterly/6 monthly/yearly dividends.

    Some could recover over a 13 month period and some could also now be back in profit from buying on dips over the year bringing the average price down, so they are not as high as the original share purchase of that stock but are now higher than the average price paid because they have gone up some but not yet at original parcel price.

    Precious metal miners have been poor performers in my portfolio but energy and capital goods stocks have performed from ok to very well. Including dividends received they have gone someway to offsetting the current drop in the precious metal miners.`

    In an earlier post you made an assumption that I was almost out of capital.. An assumption based with out any fucking clue of what my portfolio contains.

  • 25 Greg Atkinson // Jun 16, 2013 at 12:10 pm

    Hard to believe Newcrest Mining (NCM) is now under $12. A few months ago I was waiting to see if they would dip under $20, now I’m not even tempted at $12. Maybe the share price has bottomed out but at the moment gold mining stocks in general are just too volatile for my liking.

  • 26 Biker // Jun 16, 2013 at 5:21 pm

    “Maybe the share price (NCM) has bottomed out… “

    Argonaut Securities recently stress-tested WA gold producers at $1200/oz (which many, a/c to Nick Sas ‘Vultures Circle’* cite as a possible new norm) noting that most of the sector is ‘at risk of impairment’.

    Sas’ conclusion: “…the bottom may still be a way off for most local gold plays…”

    * The Weekend West, 15 – 16th July 2013, p. 5.

  • 27 Greg Atkinson // Jun 17, 2013 at 10:28 am

    Well Biker NCM is heading down again so the bottom may be a little further down. $1200 an ounce as the new norm seems reasonable and we may even see it touch $1000/oz if a little panic creeps into the gold market.

    All markets turn. I guess those who got into gold back when prices were below $1000 are probably not too worried yet, but there would be plenty of others who were swept up in the hype and maybe have not done so well.

    Meanwhile the S&P/ASX 200 & ASX All Ords are both back below 4800 and are also finding the going fairly tough at the moment.

  • 28 Biker // Jun 17, 2013 at 10:35 am

    “All markets turn….”

    Some more than others, Greg.

    I take it you’re unimpressed by DRA’s new ‘cyclical perspective’?

  • 29 Greg Atkinson // Jun 17, 2013 at 12:04 pm

    Haven’t read it. But as I have written many times I gave up a long time ago trying to pick precise entry and exit points for stocks, commodities or even houses. Long term value is what I am aim for although I often miss the target.

    Gold for example at $1700 USD/oz wasn’t screaming value at me. If he gets nearer to $1000 then I might be interested. Maybe.

  • 30 Biker // Jun 17, 2013 at 12:58 pm

    Son bought pre-$1000, sold post-$1000. He made what he wanted… and got out… without regret.

    You’d enjoy DRA’s latest prophecy… a fourteen-year Australian housing boom is now predicted!! We had a good chuckle at both the irony and the cyclical formula… . 😀

  • 31 Stillgotshoeson // Jun 18, 2013 at 12:47 pm

    Comment by Stillgotshoeson on 1 April 2010:

    Can not find where I posted that I sold 100000 Goodman Group Shares and bought even more Lihir Gold..

    Any way.. purchased 30000 overall at an average price of $2.95
    Just sold them for $4.02
    15% CGT because I had them less than 12 months (Self managed SuperFund)

    $88500 Investment returned me $32500 gross profit in less than 6 months
    31.2% Nett Profit in less than months

    Comment by Stillgotshoeson on 10 February 2010:

    Ned S. I sold out positions on JB Hifi, Harvey Norman, Robust, and Rex last month for a nice tidy profit..

    Comment by Stillgotshoeson on 11 February 2010:

    I have $4200 in dividends coming from Goodman Group this month so I spent that on Citigold..

    Comment by Stillgotshoeson on 12 February 2010:

    @Hossak

    I am always careful.. $4250 + Brokerage was not a significant stake.. I don’t think they will go bust and if they do 2 weeks lost wages is no cause to be jumping of a bridge… I think over the coming 12 months they have more upside potential than downside.

    Whilst they have been less than stellar performers, they have not yet gone broke and further exploration is occurring on their land holdings

  • 32 Biker // Jun 18, 2013 at 1:02 pm

    Maybe you also can’t find where you purchased 200000 Gold Road at their peak. They’re down around 75% of your buy price, I see.

    If your paper losses at 16/05/12 were, as you claimed $80K, I figure you’ve ‘prolly’ doubled that since. I total your _original_ Gold Miner portfolio at over $137K.

    (Comment edited by Site Admin)

  • 33 Stillgotshoeson // Jun 18, 2013 at 7:50 pm

    Biker // Jun 18, 2013 at 1:02 pm

    Maybe you also can’t find where you purchased 200000 Gold Road at their peak. They’re down around 75% of your buy price, I see.

    The percentage would probably be about right, if of course I had not bought more at a lower price to add to the GOR holdings meaning the average price paid is now lower….

    I don’t need to acknowledge anything… What I can do is ignore your claim that I have been running two portfolios for public viewing which is not the case.

    Put up the locations of all your property holdings and how much you have paid for them.

    You give snippets of information regarding your properties. What obligation do I have to you or anyone to disclose my full portfolio holdings?

    FML are up 50% in 5 days BTW.. I am sure you have noticed as you have been watching them..

  • 34 Greg Atkinson // Jun 19, 2013 at 8:51 am

    This is not the place for an ongoing debate about portfolios, one which I doubt will ever be settled. Maybe best just to move along.

  • 35 Stillgotshoeson // Aug 16, 2014 at 7:43 pm

    Gold Road are at 33 cents

  • 36 Biker // Aug 17, 2014 at 4:57 pm

    Always fun to revisit and review the past… . Like really good wine, karma improves with age… .

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