Barry Dawes, who runs an advisory business, Paradigm Securities, in Sydney, thinks it’s time to buy resources stocks. Dawes has been following the junior end of the resources market for about 30 years and I don’t think it’s unfair to call him a ‘perma-bull’. His regular client newsletter oozes optimism.
So, if we discount a little (or a lot) for that tendency, Dawes does have an arguable case when he sums up the market thus:
* US equity markets hit new all-time highs
* Asian markets surge
* Economic data showing robust growth in many countries
* Global cash levels still very high
* Commodity prices may be readying for a surge in 2015
* Chinese steel production still over 820 million tonnes per annum and 820Mt year to date (+5.3%)
* Iron ore imports into China up 15% YTD and likely to exceed 900Mt
* The US dollar still strong for now
* Japanese yen breaking down
* Global bonds have spike high then sell-off
* Gold price hammered into an important low?
Then, in bold letters, he adds: “All these indicators say BUY RESOURCES STOCKS!!”
As I say, not too many other analysts would be quite so robust in their enthusiasm, especially with gold at a four-year low and iron ore at $US76/t.
But I cite Dawes’ comments mainly to pierce the gloom into which it is so easy to lapse these days.
And Peter Strachan at Perth-based StockAnalysis – he rarely is seen being unnecessarily bullish – finds a silver lining in the gold story, pointing out that while the yellow one is sick in US dollar terms, the metal is still within an 18-month trading range in terms of the Russian ruble, the yen, the Mexican peso, Brazilian real, the pound and Australian dollar.
(And Strachan allows me to add another item to my – very long – list of gold conspiracy theories: he notes that just after Russia announced it had ben a big buyer of gold, the metal price tanked. “Could this be a concerted effort by the powerful nations to punish the Russian nomenclature for allowing its puppets to murder hundreds of people by shooting down a civilian aeroplane?”)
Goodness me, even the commodity guys at ANZ – and no friends of gold, they – see some hope.
After noting that gold is down 40% since its 2011 peak, with the bears seemingly firmly in charge, ANZ points out that the price of gold stocks vis-Ã -vis the gold price is the highest it has been for years suggesting that, when the metal price recovers, gold mining stocks should outperform on the rebound.
They add that continued investor flows into exchange-traded funds backed by gold mining companies, compared with the continuing liquidation in other gold exchange-traded funds, supports this theory.
And, just to get some perspective, and to underline that all is not lost, here are the average prices for gold over 14 years:
2001 $US273
2002 $US310
2003 $US363
2004 $US409
2005 $US444
2006 $US604
2007 $US695
2008 $US872
2009 $US973
2010 $US1226
2011 $US1571
2012 $US1669
2013 $US1411
2014 (To date) $US1279
With the base metals, they continue to be fairly resilient. Last night, for example, the metals traded on the London Metal Exchange performed steadily even with the greenback strengthening, bad news from other commodity sectors (iron ore and oil particularly) and some less than bubbly Chinese data.
With all that, copper lost only $US10/t, nickel gained $US50/t and tin was up $US70/t. Lead and zinc were down, but not by much.
Deutsche Bank, analysing commitments of traders’ reports out of the LME, sees aluminium and tin out of favour but traders liking the look of aluminium, zinc and nickel. Zinc particularly.
And even iron ore may look worse than it actually is.
Reports say the latest price drop may be due to the fact that steel mills around Beijing have been closed (presumably to clear the skies a little of smog) ahead of the Asia-Pacific Economic Co-operation conference in the Chinese capital, hence the fact that cargoes are not being sought at the usual rate.
Yes, there are worries. But, as of today, I think we can cancel the lifeboat drill.
But keep your fingers crossed.
