asx gold and uranium

ASX Gold and Uranium

By Neil Charnock
Apr 30 2007 2:21PM

www.goldoz.com.au



The opposition Australian Federal Labor Party has embraced a new uranium tolerant policy for Australia. It was a close vote; …apparently common sense won the day. This means that Australia is going to embrace uranium production “come what may” …no matter which party is elected. Labor is the currently popular alternative Government in one of the leading mining environments on the planet. The Liberal Party has come out with an even more pro-active uranium stance this weekend as well.

The recent price action in ASX uranium stocks would suggest the market has pre-empted this outcome so be careful about immediate investment as it may prove to be bad timing. These new developments may produce some excellent short term opportunities however, buyer beware. What we may see is a short spike or “inconceivable” retracement in the short term before any sustainable general rally. Gold Oz has a uranium report that covers a thumb nail brief on over 60 uranium companies from hopefuls to likely developers.

Now to my true passion – precious metals…

Gold popped through $685 but failed to clear / hold $692 which was the next resistance level. Gold traders apparently became frustrated by the failed attempts to break this level and now we are getting a minor flush out which has unwound the slightly overbought condition to neutral. We did say that there were major resistances at $685 and $692 and got a little ahead of ourselves last week. However we still stand by a test of the $728 highs and fairly soon, now that the RSI is back to neutral we still expect this outcome once $692 has been broken. Should lower near term supports be broken short term then our concerns shift to a timing delay issue, this rally is strong and the gold bull is alive and well.

Big boys agree with the gold bull

We received a very big confirmation of the gold bull from the big end of town last week. One of the major producers on the ASX has raised nearly $1B to pay out its hedge book and retire debt. The gold hedges represented a minor fraction of reserves however their reserves are huge and this was going to be an ongoing pain in the balance sheet.

Central Banks… big time selling – heavy selling by the European Central Banks has severely depleted the stock of Agreement sales for the third quarter of 2007. What delights me as a gold bull is that this has failed to do any more than hold the price at these levels. Plenty of big money has been willing to soak up this precious hoard of bullion.

Small snippet from the GoldOz Newsletter this week… from Colin Emery

The Chinese Government raised the amount of reserves banks must hold to 11% (up from 10.5%) of deposits. This is the seventh movement of this requirement in the past 12 months to try and prevent the accelerating economy from over heating. Notice the use of the word accelerating. This is to slow their economy – another touch on the brakes to slow it from a runaway freight train to a good locomotive pace.

Economic Growth for China in the first quarter this year is at 11.1% with a trade surplus of $46.4 Billion. Banks made 1.4 Trillion Yuan in loans in the quarter which is half (or six months equivalent) of the previous years. So the global economy will keep getting pushed along by China – not to mention countries such as India – and a little slowing like I discussed last week will be good.

If you hear what Colin is saying then good, you are hearing that the global economy is in excellent shape and this is not about to change because traders panic from time to time. It will not change in even the medium term no matter what rubbish is pushed out in the mainstream media. Pull backs based on fear are to be exploited; China touches the brakes… fantastic! A little slowing of acceleration is excellent news in that this resource boom can continue even longer. Remember acceleration and speed is not the same thing. Acceleration is an increase in the rate of speed.

Oh that one will make the non science minded readers flinch a bit and I am sorry. It is actually not rocket science, speed can be constant and has a momentum all of its own. Just like an uptrend and also like China speeding along at 9% growth per annum.

If you push a little harder to increase your speed then you are accelerating, for example an increase of the rate of growth from 9% to 11%. If China is consuming as much or more nickel than the world can produce now and it is growing at 11% per year then where is all the nickel going to come from? That is 11% more nickel required than there was last year… (I am being simplistic deliberately here to make my point) then so what if the rate of growth (acceleration of growth) slows or even decelerates to 8% as there is still 8% less nickel than they need!

Even a constant economy would consume resources at the same rate and that is zero growth. Note that constant economy in modern terms seems to mean 2-4% not an actual constant, in order to account for INFLATION. So zero growth would consume more or as much nickel as is available at present. Imagine the panic and price crashes that news would bring. And a drop to 8% would be touted all over the media as being a really bad thing for resources. Now back to tangibles…

Silver – the technicals are becoming a worry so a short term sell off is becoming more possible if recent resistances are not broken to the upside and soon. Copper is now in correction mode but don’t expect it to go too deep, as I have stated for months now, this global economy and construction boom and resource demand is bigger than most understand. Colin covers these metals, and nickel and zinc plus tin in our newsletter - with in depth technical coverage. Zinc has turned up again and doing exactly as predicted, but not in a straight line… much more for subscribers.

Sell in May and go away???

Well that is one way to look at it but as a contrarian I see it another way. I have just cashed out my non core positions and await possible weakness in May and June for short term trading opportunities and a chance to pick up the bargains for the balance of 2007. I have enjoyed this cycle on a yearly basis for a few years now and found it very profitable.

Because the ASX does need a rest as stated in my last article, and it has started to round over already, the chances of a mild sell off in May are good. Good and bad stocks tend to be cast out at the same time during corrections and savvy investors are patient on the sell off.

Another factor is the current round of quarterly reports which acts as a reality check for smaller stocks; producers, developers and explorers. The reports can shed light on lack of progress and cash burn and other “nasties” in the industry. I am presently trawling through hundreds of reports to catch up on my PDF set and this is a major undertaking. There is nothing like a thorough brief on the industry at this level as I always spot some potential winners – as the old saying goes… knowledge is power. Sincere thanks to all for the positive feedback on this one.

We are still running a top value introductory discount special on the new GoldOz Weekly Newsletter at this time and the response has continued to be excellent – we intended to run this for the first few 2-3 months and details are on our web site at www.goldoz.com.au . We will post a warning when this limited offer is about to close.



Good trading / investing.
Regards,
Neil Charnock