Australian (ASX) Stock Market Forum

"The best place to be is in commodities"

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June 06, 2013
PWC Lays Out A Seven-Point Action Plan For Miners Who Want To Regain The Confidence Of The Markets
By Alastair Ford

Globally the top 40 mining companies delivered a six per cent increase in output last year, according to the latest analysis by PriceWaterhouseCoopers, but softer commodities prices meant that that wasn’t translated into greater sales.
...


http://minesite.com/news/pwc-lays-o...-want-to-regain-the-confidence-of-the-markets
 
June 09, 2013
That Was The Week That Was ... In Australia
By Our Man in Oz

Minews. Good morning Australia. It looks like it was a horror week on your market.

Oz. It was more than that, especially if your politics lean to the left. Not only were all of the key indices which measure the performance of the ASX down, but the wheels fell off a government mob now being universally derided as the worst ever Australian Government.

Minews. A bit like your cricket team?

Oz. Now that’s a cheap shot, but it might prove to be correct, with both the Labor government of Julia Gillard and the cricketers being put to the test over the next 100 days. Gillard in what even her loudest supporters acknowledge will be an electoral bloodbath on September 14, and the boys at ovals across the U.K.

Minews. Are you saying Australia is having its version of a winter of discontent?

Oz. In a way, yes. The market is down sharply. The politics are awful. The economy is slowing and the country has a rudderless feel in the countdown to the inevitable change of government.

The good news, and there is a bit of it in the political and market situations, is that a change of government will bring a more mining-friendly administration, with the mining super-tax set for the chop and explorers likely to see the re-introduction of generous tax treatment.

There was also the surprisingly upbeat talk from new BHP Billiton boss, Andrew Mackenzie, in London during the week when he noted that Chinese demand for commodities remained strong. Perhaps that means that a price recovery might not be too far off.

Minews. Enough of the chit-chat time for prices.

Oz. Before providing the specifics it’s worth noting that heavy falls on the metals and gold indices were largely the result of the big companies being sold off. Smaller stocks, of the sort we follow, did not suffer as much.

Minews. Perhaps because they’re already reached the bottom?

Oz. That could well be the case, because there are quite a few well-run small miners which are trading close to cash backing, which is always a good starting point for the eventual recovery.

Take the 8.7 per cent fall in the gold index last week as an example, because virtually all of that can be attributed to one stock, Newcrest (NCM), simply because it dominates the local gold mining sector and because it has suffered a resounding crash in profitability and credibility.

Newcrest’s A$2.16 (15 per cent) fall last week to A$12.35 was the result of A$6 billion write-down of its assets, the cutting of its dividend and the sacking of 250 employees.

Possibly worse than the numbers is the way they were revealed. The corporate cops from the stock exchange and the government regulator ASIC are now asking questions about why the share price fall started two days before the formal announcement. Some of Australia’s better-known stockbrokers, such as Charlie Aitken from Bell Potter, are calling for a full investigation into who said what, and when.

Minews. Interesting stuff, but if Newcrest did the damage to the gold index how did other gold stocks hold up?

Oz. Not too badly, and that’s the interesting bit. Rises and falls were fairly evenly matched, perhaps because investors discovered that the Australian gold price has been rising for the past two months as the local currency falls, or perhaps because the sell-off has been so savage that bargain hunters thought it time to enter the market.

But before we get to the sectors, we’ll just state for the record that the all ordinaries index fell by 3.7 per cent and the metals and the mining index dropped by 5.3 per cent.

Minews. Now for prices, continuing with gold.

Oz. After Newcrest there really weren’t too many fallers. One of the best performers was Troy (TRY), up A24 cents to A$1.96 as it makes progress in bedding down its merger with Azimuth (AZH) which itself put on A3.5 cents to A32.5 cents.

Other gold movers included: Northern Star (NST), up A2 cents to A84 cents, Kingsrose (KRM), up A4 cents to A36 cents, Silver Lake (SLR), up A3.5 cents to A84.5 cents, Kingsgate (KCN), up A13 cents to A$1.80, Endeavour (EVR), down A4 cents to A88 cents, Resolute (RSG), down A2.5 cents to A76 cents, Scotgold (SGZ), up A0.6 of a cent to A2.2 cents, Regis (RRL), down A23 cents to A$3.83, Evolution (EVN), up A5.5 cents to A86 cents, and Perseus (PRU), down A4 cents to A$1.03.
...

Source >> www.minesite.com
*****
 
There are beating down commodity stocks in ASX and globally. When money starts to fall back to these stocks they will go up again.

Remember Oil went down to around $35 level per barrel of oil and then it went up to $120. Speculations also will add to downfall or uptrend of any commodity.

Commodities with supply mismatch and link to population growth will go up in the coming decade. It is time to identify emerging sectors, stocks, commodities globally.

Different markets, stocks, sectors and commodities go up and down in cycles at different times. Both Australia and New Zealand will have growth in some out of favour sectors due to new developments. Some commodity companies should benefit lot over others.

Falling AUD and NZD will create great opportunities for some commodity companies and production oriented companies.

My ideas are not a recommendation to either buy or sell any security or currency. Please do your own research prior to making any investment decisions.

In short we should see some rally in some commodity stocks during second half of this year globally while having minor fluctuations.
 
According to following links both corn and soybean prices can go down in the second half of this year.

http://www.producer.com/2013/05/record-wor...sh-prices-down/

Record world crops could push prices down

http://www.bloomberg.com/news/2013-...s-drier-weather-may-help-crop-conditions.html

Corn Drops With Soybeans as Dry Weather May Aid Crop Conditions.

My ideas are not a recommendation to either buy or sell any security, commodity or currency. Please do your own research prior to making any investment decisions. Please note that I do not endorse or take responsibility for material in the above hyper-linked sites
 
June 10, 2013
Recovery May Be Breeding Uncertainty, But Mining Shares Still Give Investors A Higher Yield
Than Any Government IOU
By Rob Davies

The growing belief that the US economy is starting to get back on its feet has, bizarrely, triggered a great deal of uncertainty in capital markets.

A bit like a nervous ice skater gripping on to the wall of the rink for support, investors still rely on the US Federal Reserve printing US$85 billion dollars of new money every month to support the bond market and keep interest rates low.

Right now traders are unsure that they won’t fall over without that supporting hand.

The mere thought that it might be withdrawn has been enough to give the bond market the collywobbles, and that in turn has caused upsets in equity, currency and commodity markets.

A strong dollar depressed the gold price but its subsequent retracement has not led to any recovery in the price of gold.

Base metals usually respond well to a weaker dollar, but last week the LME index slipped back 0.5 per cent to 3,153.

Overall sentiment to commodities has turned negative, partly because of the expected withdrawal of the QE support with its hints of inflation.

Consequently, many commentators have already written off the sector and are recommending a zero allocation to it.

Some might argue that this is a classic case of making the call after the event. It is sobering to note that the FTSE 350 Mining Index is already down 40 per cent from its peak in early 2011.

Over on the AIM market the Basic Resources Index is down 64 per cent over the last two years, as you might expect from the racier end of the market.

Yet zinc is only down 25 per cent, aluminium 31 per cent, copper 27 per cent from their peaks. Although it also has to be said that nickel is down an eye-watering 48 per cent from its peak price of this cycle.

In theory of course the downside to equities is 100 per cent, i.e. they can fall to zero. So maybe the call is still worth making. There is, however, one big difference between equities and commodities.

While it is quite feasible to imagine a mining company having no worth at all it is impossible to imagine that being the case for the underlying commodity. No one is going to offer you metal for free.

Moreover, despite the uncertainty about the future of QE it is worth remembering that the world is still functioning - indeed growing at the rate of three or four per cent a year.

That means base metals are still required for new electrical reticulation systems, houses, infrastructure and replacement of transport vehicles. Even allowing for a growing element of recycling, new material is always required.

That demand can only be satisfied by new production and, generally, miners only produce metals if they can do so profitably. At the moment most of them still can and will continue to do so as long as the economics are right.

The fall in the mining equity indices over the last two years reflects changes in sentiment as much as the prices of the underlying commodities.

It is hard to know whether it is pricing in more uncertain times ahead.

All that is known is that most mining companies are still making good profits and paying out good dividends.

Cynics might argue that is the problem, and that the bottom won’t be reached until the industry is making large losses again. That might be the case.

But in the meantime mining shares give investors a higher yield than any government IOU.

Source >>>>> www.minesite.com
*****
 
Finally I am bearish on gold, corn and soya bean. There will be weak demand for all of the above commodities in the coming months. Both corn and soya bean inventories will go up in the second half this year due to record harvests. Only weather shock will change the direction. Now even banks are down grading prospects for corn and soya bean.

If investment demand continues to decline and gold ETF holders continue to sell, I believe a gold price below $1,000/oz .Gold will eventually return to its true cost of production.

In addition we have to accept no currency, stock or any commodity will go straight up and down. We had great rally for gold during last 10 years and gold cycle has reversed to bear territory now. There can be dead cat bounce for gold time to time and intelligent players will make use of this opportunity to sell their gold positions.

It is time to become bullish on commodities with demand and supply mismatch and emerging commodities globally. Investors will have some great opportunity to pick some emerging commodity stocks globally in the coming weeks and months.

In the long run gold, corn and soya bean prices will go up. Intermediate trend for these commodities are down now. Money will outflow from these commodities to the next most bullish commodities and stocks.

My ideas are not a recommendation to either buy or sell any security, commodity or currency. Please do your own research prior to making any investment decisions.
 
June 17, 2013
The Short-Term Matters To Money Managers, Not The Long-Term,
Which Gives Private Investors A Distinct Advantage
Rob Davies

Investing is complex mixture of arithmetic and psychology. It is the second element – psychology - that gives rise to the innumerable aphorisms that journalists like to quote about the markets.

Most are misleading and some are downright wrong.

A few though seem to capture the mood of the moment.

One that does quite aptly is the idea that markets always seem to move to impose the maximum amount of damage on as many people as possible.

A little thought suggests that this makes sense.

If everyone has already bought as much of a particular asset as they want it suggests that the pool of additional buyers is going to be relatively small.

That now seems to be the case with emerging markets, Japanese equities, US Treasuries and the dollar.

Sharp changes in all these asset classes in recent weeks have unsettled markets and commentators alike and have left them all struggling for explanations.

The one asset class that was universally agreed to have more downside was commodities and they were not immune either, dropping 2.7 per cent on the LME index last week.

What was surprising though was that this occurred even though the dollar moved to a four month low. Normally a weaker dollar is good for metals.

Turmoil in emerging market currencies has not made life much easier for miners. A falling dollar compounds the effect of weaker metal prices and effectively pushes up costs in some countries with large mining industries.

Dollar weakness is slightly perplexing as the steady flow of data evidencing a US recovery continues. Industrial production was unchanged in May after a drop of 0.4 per cent in April. Car sales increased by 1.8 per cent in May as well, which builds on the 0.7 per cent gain in the previous month.

Even so the IMF is only predicting US growth of 1.9 per cent this year and has revised its forecast for 2014 down from three per cent to 2.7 per cent.

The good news is that this growth is being achieved despite tightening US fiscal policy to reduce the deficit. The IMF estimates that this will reduce growth this year by 1.75 per cent.

It is a well-known feature of markets that they often prefer to travel than to arrive. Confirmation of the US recovery was expected and now generates the question as to what happens next.

Mining investors know that an expanding US economy is no match for a Chinese one that is growing more slowly.

More problematic is that after these two themes have played out there isn’t really another one to take up the slack now that emerging markets have played out. In any case, at heart the emerging markets were just regional plays on the commodity story.

The core of the problem is that so much money is locked up in “safe” bond markets, especially that of the US, that investors are scared stiff of adding risk by diversifying into other asset classes.

Sure, they know that inflation is eating away at their capital, but that doesn’t really impact on quarterly performance data. Someone else can deal with problem in a few years’ time.

It is the short term that matters to money managers, not the long term.

The problem is that the more they dither the more money they lose as bonds move against them. The advantage the private investor has is that he or can she can look through the short term and invest for the long term.

Source >>> www.minesite.com
*****
 
June 15, 2013
That Was The Week That Was ... In Australia
By Our Man in Oz

Minews. Good morning Australia. You certainly had a wild ride last week, but seem to have ended where you started.

Oz. Much like the rest of the world really, down for much of the week followed by a big lift on Friday. The net result was that the all ordinaries actually added around one per cent, the metals and mining shed one per cent, and the gold index continued its sharp decline, shedding another 5.7 per cent, with Newcrest once again the main offender.

Minews. That Newcrest situation seems to be tainting the whole gold sector.

Oz. It certainly is, and as the corporate cops sift through the evidence they’re finding exactly what you might have expected: private briefings by someone in the company to a select few equity analysts.

Minews. You would think that management in a big listed company would know better than that.

Oz. You would, but Newcrest has always been a little aloof from the rest of the industry, perhaps because size breeds arrogance. In any event, the news from the multiple investigations underway has revealed an email trail of analyst warnings to important clients with those warnings containing very accurate detail about Newcrest’s future gold production forecasts.

Minews. Presumably the bad publicity saw Newcrest sold off again last week.

Oz. It did. On Thursday, Newcrest touched a fresh 10 year low of A$11.40, before closing the week at A$11.57 for a loss of A78 cents. That takes the fall over the past three weeks to A$3.55. Less than two months ago, Newcrest was trading at more than A$20. Last October, it was trading close to A$30.

...

Source >>> www.minesite.com
*****
 
June 24, 2013
Will The Chinese Bail Out US Gold Investors, Or Won’t They?
By Rob Davies

It is obvious to all that global capital markets are in a state of heighted tension. What is less clear is exactly why.

And what is totally unclear is what happens next, what it means for investors and how they should position portfolios.

The largest sign of stress is the 19 per cent fall in the US Treasury bond market, as measured by the yield on the 10 year bond.

Over one week it increased from 2.1 per cent to 2.5 per cent as investors digest the hints that the US Federal Reserve is actively considering withdrawing its monthly US$85 billion financial injection to the economy.

The first sign of Cold Turkey has been the rise in US mortgage rates. The benchmark 30 year mortgage has increased from 3.4 per cent to 4.2 per cent, which has the effect of sucking an awful lot of disposable income out of the world’s largest consumer market.

Almost at a stroke that reduces worries about rising inflation and is probably the major reason for the abrupt fall in the gold price.

Last week it fell nine per cent and the prime culprit is redemptions of gold backed ETFs. Having accounted for 45 per cent of demand for gold in 2011 Société Générale now estimates that redemptions from ETFs are releasing a 100 tonnes of gold a month onto the market.

Despite an initial surge in demand from the Middle East on the early falls in price, Société Générale does not think there is sufficient appetite to absorb the 800 tonnes it expects to flow from ETFs this year.

This dumping is equivalent to almost one third of new mine production and is a massive surge in supply at the same time that demand has weakened.

Moreover, Société Générale does not think high production costs, now estimated to average US$1,211 an ounce, will provide much of a floor to the price.

Not until gold reaches US$1,150 an ounce, when it estimates that 44 per cent of production will be loss making, does it expect any support.

For many years gold miners craved mass market support for their product. Now they are discovering, as many others have, that retail investors can be fickle

To complicate matters further China is under pressure. This command and control economy run by communists has been the salvation of the capitalist world for the last few years.

A massive jump of 168 per cent in Chinese private debt in the third quarter of last year has persuaded the authorities to start tightening bank lending.

That has had the predictable effect of pushing up overnight rates to 8.4 per cent, triggering concerns of a liquidity crisis akin to that experienced by the west in 2008.

This fear is behind the reduction of HSBC’s forecasts for Chinese growth from 8.2 per cent to 7.4 per cent.

As the world’s largest consumer of metals that reduction was a good excuse for base metals, as measured by the LME index, to slide 3.3 per cent to 2,969. Copper took one of the biggest hits, falling 3.8 per cent to US$6,775 a tonne.

At the end of a such a week what do we know now that we didn’t before?

Actually, not much. But we have had confirmation of a few things. One is that the three-decade bull market in bonds is certainly over.

The other noteworthy news is the comment from Yi Gang, a deputy governor of the Peoples Bank of China. He said: “We can only invest one-to-two per cent of the foreign exchange reserves into gold because the market is too small.”

It does not seem that the Chinese will bail out US gold investors, and possibly any other investors either. The Chinese have enough problems of their own.

Source >>> www.minesite.com
*****
 
June 22, 2013
That Was The Week That Was ... In Australia
By Our Man in Oz

Minews. Good morning Australia. Your market seems to have been as rattled as everywhere else by the end of the cheap-money era.

Oz. We certainly got a loud reminder that the world is changing, and not for the better, when it comes to gold, in the short-term at least.

What really hurt the Australian market was the stampede of carry-trade speculators who suddenly discovered that not only had a decision been made to turn off the cheap-money tap but that their exposure to falling commodity-heavy currencies was producing a second downward force on their investments.

Minews. The net result being heavy falls across all sectors?

Oz. Falls, yes. Heavy, not really. When we get to the numbers you’ll see that most of the damage in areas other than gold had already been done.

As a guide, the all ordinaries index on the ASX ended the week down a relatively modest one per cent. The metals and mining index was down a more substantial three per cent, and gold was whacked by a very painful 10.5 per cent fall.

Minews. We’ll start the call of the card with gold, unless you have anything else to add.

Oz. Only that the process started during the week by the head of the U.S. central bank, Ben Bernanke, was unequivocally good news for equity markets once the damage of funds being rotated is complete.

It’s not guaranteed but what seems to have started is a shift of capital away from emergency locations, such as gold and government bonds, back into more conventional destinations such as equities.

It’s a process which will eventually filter through to traditional markets, and could be the start of the long-awaited global recovery, led by the US, but a recovery which will trigger increased demand for basic raw materials.

Minews. Is that your long-winded way of the saying we’ve hit the bottom?

Oz. In a word, yes. We’re either at the bottom, or at the start of a period of bouncing along the bottom, but with a slow rise starting as money starts to make its way back into well-run stocks, especially those trading at less than cash backing, of which there are quite a few listed on the ASX.
...

Source >>> www.minesite.com
*****
 

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