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Here is Roffeys latest

Dr Roffey On Gold & DROOY

Dr. Clive Roffey

Gold and silver bullion prices are roaring, and should continue to do so for the better part of this year. We are into the acceleration phase of the market. This is a grab the stocks, buckle up your seat belts and go for the ride type of market. Forget about trading the precious metal stocks, this is a LONG TERM BULL market. And bull markets are for investment not trading.

In issue 358 I detailed that I expected to see a silver price of $6 before the end of December. This is exactly what happened. In October 2002 I detailed silver stocks as one of the best buys in terms of global performance. They produced the goods and I have no reason to change my mind for this year. Stay with those silver stocks, the market has only just started the engines for lift off. Although the count down has been completed the precious metal shares are not even clear of the launching pad. They still have to shoot into orbit!!

In issue 359 of December 20th I detailed the position with Drooy. Since then it has appreciated some 60%. This stock has not yet started its main move. The gold market is very simple. In a bull market you buy Drooy as it will outperform all the other leading producers by a mile. In a bear market, who needs gold shares?

But the key to current investment strategy is the Rand price of gold. For the past nine months the $ denominated gold stocks have performed whilst the Rand orientated South Africans have lagged due to the inordinate strength of the currency. This has reversed. I am looking for a serious move in the South Africans and have, since the beginning of December, advocated switching out of the North Americans into South Africans. I would be holding Drooy as the most marginal stock, Goldfields as a recovery stock and Harmony as a performing producer. I have been a constant advocate of Randgold in view of its $ earnings from the Marila mine in Mali. I am recommending a switch out of this stock into the other three.

I am looking for the Rand price of gold to touch R120 000 per kilo this year. With all mines making a profit at R85 000 per kilo this will send the Drooy and GFI into orbit.

During the holidays I was postulating upon the supposedly rosy perspective for the global economy. I have come to the conclusion that the world has entered a period of competitive currency printing that effectively indicates competitive inflation. Every country is fighting to protect its own national market and share of exported goods sales. I continue to look for a slow down in economic growth in the US accompanied by accelerating inflation, leading to stagflation. This should be fantastic for the precious metals and lousy for the global equity markets.

My 2004 message is simply to stay with the precious metal stocks as they continue to outgun the equity markets. Ensure that you have a good part of your gold mine producer portfolio in Drooy and GFI. I am well aware that the small cap exploration and development stocks run in this phase but I prefer to stick to the better traded gold producers.

There is a forgotten side issue to holding stock in the producing miners. I forecast that before this gold market has finished the full extent of its long term bull move most of the SA gold stocks will pay an annual dividend equal to today's share price!! This happened before and I believe it is likely to happen again.

I note that some analysts are quoting an early 2003 report by the SA Chamber of Mines relating to the number of gold mines facing closure at the Rand gold price about six months ago. Remember that there is a huge politicizing element in these reports designed to achieve maximum benefits for the mines. Apart from detailing production statistics they also exist to place pressure on Government to stop the appreciation of the currency as well as setting the 'difficult times' miner's scene for the next phase of wage negotiations with the vociferous unions. Outside the production statistics I do not take the political comments of these reports too seriously. We are in a world where everybody is watching their backs.

One of my main forecasts for 2004 is a 50% move in the oil price. I am looking for Brent crude to move from $30 per barrel to $45 per barrel this year. In addition I am looking for a proxy move in the coal price on the back of rising oil prices. This could have a huge effect on the profitability of industrial and electricity production, as well as contributing to global inflation. Such a scenario can only be good for gold. Perhaps we really are looking at 1979 all over again!!

For the past few issues I have been analyzing that silver will out perform gold with platinum bringing up the rear in the precious metal stakes. I have no reason to change this opinion.

My data indicates that the biggest Rand gold producer, Anglogold is ready to start performing. This is almost exclusively an institutional stock. My data implies that there is about to be an entry into the gold market by some of the more enlightened financial house looking for a small portfolio portion in gold as an equity hedge.

This forces me to reiterate that gold stocks are the tightest held globally traded entity. There is a GLOBAL TOTAL of only approx $50 billion of available tradable gold stocks. This is the figure that any serious financial house will look at; it does not include the myriad small capital exploration and developers. By any serious investment standard $50 billion is miniscule, petty cash for any of the trillion dollar US mutual funds. This would put the gold stock situation into the category of high illiquidity and any minute buying pressure on this market will have an exponential effect on share prices once it is realized that the major SA mines are all operating at a profit. I expect to see a volume surge in the trading levels of the SA gold stocks this year.

Quite how the Dow has managed to push its way above 10 500 is beyond me. I believe that any level above 9 800 is extremely dangerous and asking for a severe correction. I look for a substantial fall in global equities in 2004 led by a 3000 point drop in the Dow to retest the 7 200 previous lows. T Bond rates are hovering inside critical patterns. Should the 30 year rate currently around 5% be able to break above 5.5% then I expect to see a move up to 6,5% this year. This critical data must be carefully monitored as it will have an enormous lateral effect on equity performance.

I do not often delve into arbitrage matters but I am already indicating a long silver short platinum position. However the palladium price looks ready for action and I would also suggest a long palladium short platinum portfolio for arbitrage traders.

Enjoy 2004, it should be a silver year with a golden lining.



Dr. Clive Roffey

11 January 2004