Warwick Grigor released a gold sector analsis mostly on blue chips, but read his points on the gold sector very bullish, just another reason to be patient with ORP we know we are clearly advanced & undervalued when the time is right our rerating will come:
Heres some points & the link to the report:
Rolling Commodity Bull Market With Parallels to the 1970s: The resource bull market has been driven by bulk commodities with enormous wealth being generated from coal and iron investments over the past three years. This testifies a fundamental change in the business compared with the 1980s and 1990s. Every other commodity has had at least a period of glory as enthusiasm, driven by high prices, has rolled from one metal to another in a boom not dissimilar to the rolling bull market in commodities in the late 1970s.
Gold is Yet to be Embraced: The gold price has been strong yes, but relative to most other commodities it has underperformed. It has been too early in the cycle to expect anything else. Drawing parallels with the 1970s again, gold did not peak until 1980, when it did so in spectacular fashion. Markets operate in cycles. The key is to be able to understand how they unfold and being bold enough to act in anticipation; experience and a long memory helps.
Inflation Adjusted Peak Gold Price is US$2,200/oz: Gold peaked at US$850/oz on 21st January 1980, creating enormous speculation and opportunity. It rose 608% from US$120/oz only 3 years before hand, in January 1977. The inflation adjusted peak of the previous high, today, is US$2,200/oz. That should be very easy to achieve over the next two years seeing as it is only 140% above recent peaks. Gold has been a spectacular performer previously, and it can be again.
Selectively Seek the Quality Now: When the gold market eventually goes into over-drive it will not be hard to make money as the scramble for gold will drive the entire sector higher. However, as is usually the case, getting set is always a problem. There is time in the lead-up to this scenario to accumulate quality gold situations now. Those stocks should stand up to scrutiny on existing market fundamentals, today, rather than rely on a forecast boom. A higher gold price will simply act as a turbo-charge on the investment.
The Sector Covers a Mixed Bag: The gold sector is extensive and diversified. This paper covers producers only, but there is excellent value in development stocks, which will cover next. There are many other minor producers not covered in this paper that may have been excluded because they are too small or too specialised.
Crashed and Burned, or Bailed Out: There have been many companies attempting gold projects over the past five years with most of them ending in tears. Some have fallen victim to capital cost inflation and the inability to compete in the tight labour market, but others have gone into projects undercapitalised or with insufficient resources. Simply re-starting old projects has been a recipe for disaster.
