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Gold ActionDr Clive
Roffey I have had world wide response to our new penny stock newsletter (excerpt here) and by request have started a model portfolio of 10 penny stocks for both North American and Australian investors. The volume characteristics of penny stocks are far more important than for the bigger capital stocks. In the large cap stocks there is always sufficient volume to buy and sell at will but most penny stocks do not exhibit this luxury. In ranging markets and bear phases the volume can dry up to almost nothing in the smaller companies. This presents a problem as if profits are not taken in the running market investors can be left holding the baby in the eventual downturn. In most cases it takes several years for the penny stock to recover to its previous highs. I am often asked about dealing in South African gold shares. In the US they are bought and sold in ADR format. The Bank of America is by far the largest operator in ADRs. The bank buys the South Afdrican stock and then issues ADRs against this holding. Obviously this involves a cost on issuance and on redemption in addition to normal brokerage costs. In addition dividends paid out by the mining company are obviously paid to the bank as the beneficial owner of the stock. Before paying it out to investors they take a handling percentage. Dealing through the ADR system can be expensive. One way to combat this is to ask your broker for "Cape Delivery." This means that the broker goes direct to the JSE via a broker in South Africa. The broking charges should be cheaper and as the stock is directly in the name of the investor there should be no handling charges. Smaller US brokers will not have this facility and will go the larger broking groups to effect the 'Cape Delivery' transaction. This will involve a double broking charge as both sets of stock brokers will charge a fee. If you do not have an account with a large group then you can contact me and I will detail a top broker in South Africa that deals direct with smaller brokers in America. I shall be away from the office on business in Europe for the weekend of the October 2nd when the next issue is due. Although I am taking my laptop with me it may not be possible for me to produce a full report. Please accept my apologies in advance and I will produce a full report the following weekend of October 9th. The most interesting chart at this point of time is that of the $ gold price. It has been churning just above $400 for the past couple of months. This has built up a base from which the next upside charge can materialise. It will need a move back above $408 to trigger the breakout. There remains the huge overhead selling resistance at the $430 level that has dominated gold price movement for the past 15 years. Once above $408 I do not expect much resistance at $430 as the base build up for the past 15 years has sufficient strength to break well above this resistance before a correction. In the last issue of the 'Gold & Silver Penny Stock' newsletter I discussed the fact that in a new bull phase the large producers move first whilst the smaller more marginal producers continue to form bases and the volatile exploration companies remain static. In the current situation we have had the big miners recovering over the past two months whilst the marginal stocks have continued to wallow in their bases. But all the signs are that these bases are complete and that the secondary marginal miners will now start to move and out perform the big miners as the earnings rise exponentially against costs. For the doubters this includes Durban Deep.
This is a composite chart of my proprietary oscillator that I use for my sector rating tables. I use it for comparing the long term performance of various stock market elements. In this case I compare the performance of the Dow against the $ gold, silver and platinum prices. It is very clear that from 1988 the Dow was on top of the metal prices indicating a superior performance. But the crux of this data occurred at the end of 2001 when the Dow's performance fell under all the precious metal lines. Since then the precious metals have exhibited superior performance. The shape of the chart indicates that this is likely to continue for quite some time as this is a monthly chart.
The FT gold index is a global gold index as it contains all the leading stocks from South Africa, North America and Australia. This chart is thus more representative of the global picture whilst the individual markets can be affected by the local currency. Once again there is a huge reverse head and shoulders pattern that has broke to the upside in mid 2003. Since the start of this year we have seen a typical pullback to test the breakout level. This is usually a superb buying time. All the leading gold indexes remain extremely bullish on their weekly and monthly data. More follows
for subscribers. "Gold Action" is a fortnightly commentary on global gold and precious metal markets produced by Dr. Clive Roffey, Johannesburg, South Africa, a leading professional independent commentator on gold markets since 1969. 321gold Inc |
