Archive for the ‘USD’ Category
Bear Comparison: Today’s Junior Resource Sector vs 2001’s Nasdaq
- Jesse Livermore, Reminiscences of a Stock Operator In October 2002, few stock traders doubted that technology was creating value and changing the face of the Earth. Even so, the Nasdaq was priced at 1/4 of the value of its March 2000 peak amid the rubble of the tech crash. Six years later in 2008, the Nasdaq has gained 100% from its 2002 bottom. Such a swing speaks to the short-term irrationality of the market. Today’s resource junior sector offered the same types of glowing promises as the technology startups did in early 2000. With record commodity prices and mining producers looking to replenish depleting reserves through acquisition, the value proposition of junior companies is clear. For the last few years, investors bought into junior mining companies for the elusive, 10-bagger discoveries. While there were some success stories, most junior mining investors have found disappointment so far. A glance at the TSX Venture Composite Index (junior resource index), shows that the index is trading at a nearly 3-year low, which begs the question: “what is going on?”
In the charts above, I have aligned the Nasdaq’s peak in March 2000 with the peak of the Venture Index in May 2006. You can see striking similarities in those two charts after the peaks. Technically, the Venture index just broke through the green consolidation range and is in its final bottoming phase. Fundamentally, junior companies without prospects are selling at or close to cash value. Those with real deposits are being acquired, as witnessed by recent $ billion+ takeover of Aurelian (by Kinross) and Gold Eagle (by Gold Corp). This picture reminds me exactly of where the Nasdaq was in late 2002, where companies were either trading at cash value or being bought out. I can’t say the bottom will be in August for sure, or that a surging rebound is around the corner. There are already casualties and many outfits won’t make it through this correction above water. For me, this is housecleaning time, there is no exact formula in what to sell, switch, and keep, and I oftentimes consult experienced brokers for some emotionally unattached advice. Wall Street can stay irrational longer than you can stay solvent. Regardless of when the rebound comes, I wouldn’t mortgage the house to buy junior stocks now, or ever. However, with the all the reasons for investing in the junior mining sector still intact, for those with pennies to spare, now is the time to average in. As Warren Buffett puts it: “You should be happy; the hamburger you want to buy just got cheaper.” |
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John Lee http://www.goldmau.com |
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jlee@goldmau.com 1.800.965.6404 View ArchivesJohn Lee is the lead contributor at and founder of Goldmau.com. Want to learn more about the Junior Mining sector? Don’t know how to tell the good stories from the dogs? At Goldmau, we’ve got all the resources you need. Click Here to sign up for our free Market Update mailing list, or better yet, Subscribe Now risk-free to John Lee’s Stock Chart of the Week. You’ll get in-depth technical stock analysis and insight on junior mining stocks that you can’t find anywhere else. |
THE CASE FOR USD 1,300/oz GOLD
by John Lee, CFA
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05/27/2008
In October 2007, when gold was USD 750/oz and a US Dollar fetched 7.5 Chinese Renminbi Yuan (RMB), I published an article titled “Gold and RMB – Last Shoe to Drop for the dollar”, in which I said:
For a US family that spends $300 to $500 a month on Chinese goods, a further 40% appreciation of the RMB will translate into a $100 to $200 monthly cost increase. The logic of asking the Chinese to revalue their currency upwards is no different from asking the Saudi’s to jack up their oil price further, which is no logic at all for a US consumer.
Holding Dollars is like playing musical chairs. When the music stops, the one holding the most Green IOUs, loses.
- With a rapidly sinking Dollar vs. western currencies, the Dollar’s supreme image is now very wobbly.
- Having built up a war chest of USD 1 trillion, the Chinese need no more Dollars to shore up confidence in its own paper within the international arena
Combining these two factors, the Chinese government will likely loosen the RMB peg to the Dollar at a faster pace, and we expect a minimum of 20% appreciation in RMB over the Dollar (i.e 5-6 RMB to 1 USD) in the next 12 to 18 months. Gold is international money, and will follow the RMB’s suit and climb to over $1,000/oz over the same period. This gold target is a conservative estimate given that other commodities from oil to copper have all quadrupled from their lows this decade. Gold’s low was $250/oz in 2001.
Gold and the RMB’s rise will be the final chapter to the Dollar’s status as the world’s reserve currency, and the end to an era of low priced Walmart goods made in China.
-John Lee, October 27 2007
Now, 7 months later:
The RMB has since appreciated at the fastest 6-month pace on record, up over 7% and cracked through the psychological 7 RMB/USD barrier to trade at 6.95 RMB/USD. The talk of demanding the Chinese to revalue their currency has all but disappeared.
3 year RMB exchange rate to USD, no signs of slowing down
Gold met our 12 month target in 4 months and surpassed USD 1,000/oz in March 2008.
2 year gold chart, ready to take another crack at $1,000/oz
Fast-rising commodity prices and appreciating RMB are putting pushing up prices of everything measured in USD. Unheard of in the past decade, computer prices are going up for the first time in recent memory.
2009 Gold Target: USD 1,300/oz based on 5 RMB to 1 USD exchange rate
Let’s do an experiment: If we fix the RMB-denominated gold price constant at today’s closing of RMB 6,425/oz, the price of gold will reach USD 1,285/oz should RMB reach our target of 5 RMB to 1 USD by the end of 2009.
There are those who predict a rebound of the dollar index and a protracted USD 800/oz gold price or even lower. They just don’t get the message. Gold is an international market. Physical gold demand is mostly from Asia and as long as Asian currencies keep strengthening, the USD-denominated gold price will keep going up, regardless of what happens to the US dollar index.
Our 2009 gold target of USD 1,300/oz does not factor in external elements such as geo-politics or the speculative herd-following frenzy. I have a feeling this once-unthinkable 4-digit target will turn out to be too conservative.
John Lee, CFA
johnlee@goldmau.com
+1.800.965.6404
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