It looks like some other South African Analysts like DROOY as a leveraged way to play this rise in POG: 196.36.119.130
Posted: 1999/09/27 10:00 PM GMT+2
Clive Roffey & Issy Bacher: Gold analysts
MONEYWEB: It pays to listen to our gurus, and Clive Roffey, take a bow. Last week you said the gold price was on its way to R300 an ounce. We had the best day in 20 years today ? an almost R20 increase ? but surely it caught even you by surprise?
CLIVE ROFFEY: Yes, it did catch me by surprise. I wasn't quite expecting it to catapult as fast as it did. But, nevertheless, it's rather welcome.
MONEYWEB: Now, from here, are you anticipating that it will slide back a little bit, give those who didn't buy last week an opportunity to nibble away, or is it on its way?
CLIVE ROFFEY: I think it's on its way. I'm not looking for major slide-backs from here at all. I think we've formed a base, we've catapulted off the base. The major resistance level is between $285 and $300 an ounce. I expect to see some churning around here for a little while. But no ? this, I think, is the real thing, at last.
MONEYWEB: Issy Bacher is with us as well. Issy, you've been a little more circumspect on the gold price. But, then, a week in this business is a long time, and we haven't spoken for a few weeks. What's your view of what happened today?
ISSY BACHER: I agree entirely with Clive. What is very significant is that an enormous trend line of resistance has been broken, extending from 1994 to now ? that's six years of resistance gone right through when it hits $282 ? so I agree with Clive. We're going to get small pull-backs but I think this is the big thing. The gold index has broken right through, also the six-year resistance level ? right through. ASA American Gold Shares, right through, Newmont, right through. A very important indication is the gold price relative to the Dow Jones ? remember the first time I was here I told you that there'd been an initial break ? now there's a long term break, also from '94 to now. But I agree with Clive. It's going to move up and down, but I don't think we'll have big pull-backs. But it's probably moved too much today, and possibly tomorrow there could be a small pull-back for investors to move in.
MONEYWEB: Now Clive has forecast $300 an ounce by the end of the year. It seems almost conservative now, with three-and-a-half months to go. Would you go along with that ? $300 an ounce by the end of the year?
ISSY BACHER: I'm looking at my charts and I'm saying that it's going to go back to $400, and that the JSE Gold Index is going to go to 24'000. It's going to go all the way up again.
MONEYWEB: A doubling of the current level?
ISSY BACHER: Absolutely, yes.
MONEYWEB: How long do you think it might take?
ISSY BACHER: I think it'll take about a year and a half. You've got to look at the 1993 market. It's very similar to the 1993 Technically, everybody would have been selling last week, but you could see on our cycles that the thing was starting to bottom out. It started in February '93 and the market finished at the end of '94, so that was one-and-a-half years.
MONEYWEB: Clive, you've heard that, Issy's view ? $400 an ounce, a doubling in the gold index from the current level. Would you go along with that in the year's horizon?
CLIVE ROFFEY: I think Issy might be a bit conservative on the index because the shares have a habit of outperforming the gold price on a ratio of 2 or 3:1 so, certainly, I'm looking to $385 as an upside target, but let's make one thing absolutely clear. The South African public has this habit of wanting instantaneous gratification. It's not going to happen tomorrow. As Issy says, we're looking at about a year, I think, sometime next year we'll see $385 an ounce. But don't expect that to happen overnight. Some of the shares, especially the more marginal stocks, like Durban Deep, are showing unbelievable patterns at the present moment. Absolutely frightening.
MONEYWEB: That's your favourite ? Durban Deep?
CLIVE ROFFEY: I would like Durban Deep primarily because it's the most marginal mine left on the board. It's got a very, very small forward book ? only about 7% of its total sales have been sold forward. So it's directly related to the gold price move and, if we get a move in the gold price, I think Durban Deep can absolutely fly. I think at this stage it's pretty much undervalued.
MONEYWEB: That was the tip from Gerard Kemp of BoE Securities the other day, as well ? also Durban Deep. Issy, what's your pick?
ISSY BACHER: Yes, I agree entirely. I think when you speak to Nick ?
MONEYWEB: He'll also go for Durban Deep. We'll watch that share price go on the strength of you three tonight.
ISSY BACHER: Yes, we're looking for shares that are undervalued at this point. Obviously, another share that you've got to look at very closely is Harmony. They're unhedged. I was looking at the chart here, it looks [like] R50 to me. First stop R30, which has started. Next stop R35.40, then R50.
MONEYWEB: All right, what about the rest of the Johannesburg Stock Exchange? Clive?
CLIVE ROFFEY: We have hit a low level now. I'm not as bearish as I was. I've been very bearish over the last six months on the industrials, the financials and the electronics ? as you well know. And correctly so. Now I'm beginning to sort of hedge my bets a little, because it's exceptionally oversold. Whether this is a major technical buying area, I'm not utterly convinced at this point in time, but I'm certainly looking for a bit of a bounce in the industrial market.
MONEYWEB: You're probably going to say you agree with that, Issy?
ISSY BACHER: Well, I think, if you go back, we said October was the buying time. Certainly there's support for the industrials now. I would say if you're looking for value, you've got to go for it.
MONEYWEB: So at last the gold shares seem to be coming right, the industrial market seems to be coming right. What about Wall Street? Issy?
ISSY BACHER: Well, Wall Street I see has broken support, right? And, going down to about October, I think it will turn in October as well. So the potential there is another 10% down. There is that potential support that has been broken, but I don't think it's going to collapse completely and I think it's going to turn around also, towards about the end of October.
MONEYWEB: Clive Roffey, would you agree with Issy Bacher?
CLIVE ROFFEY: I'm not quite as happy about it as Issy would appear be. It's broken major support, and I can see it down to 9'500 ? and, as I said on Wednesday, pray that it stays there, because if it does not hold that support level, we have huge problems. And our market may well react nicely in the short term, but I think there's a big black cloud in the shape of Wall Street hanging over us, and we've got to pay particular attention to that.
ISSY BACHER: I agree there.
MONEYWEB: There you have it, the good news for golds. Not such good news for Wall Street, and fair news for industrials and financials from our two gold men. We'll be talking to Nick Goodwin, the third musketeer, as it were, just after six o'clock.
By: Alec Hogg
Posted: 1999/09/27 10:00 PM GMT+2
Nick Goodwin: Local market roundup
MONEYWEB: On a day when the gold price rises by $20 an ounce, gold shares are up by 14% ? best in ten years, both of those ? who better as our guest market commentator than one Nick Goodwin, of Fedsure Asset Management? Well Nick, you got it wrong last time. You got us to sell all our gold shares. Can we start buying now?
NICK GOODWIN: Yes, correct.
MONEYWEB: You're allowed one slip, I guess, in a couple of years.
NICK GOODWIN: Yes. Two weeks ago I was a bit negative because gold looked like it was going nowhere. I thought that the gold price would start moving about the end of November, just before the year 2000 ? but unfortunately it moved ahead of me. It was quite an interesting decision by the central banks.
MONEYWEB: Just explain exactly what happened there.
NICK GOODWIN: Well, it's actually very positive for gold, because they've been selling between 400 and 600 tons per year for the last few years, and they've now decided to limit that to 400 tons a year for the next five years.
MONEYWEB: These are the European central banks? The fifteen European countries?
NICK GOODWIN: Absolutely. But it also includes the Bank of England's gold as well, and the Swiss Bank's gold, because the Swiss were going to start selling gold in the middle of 2000, about 1'000 tons ? and they actually wanted to sell about 2'000 tons further on. So you've had all this negative news coming out about future central-bank sales, which has allowed the speculators to jump on the bandwagon and continue to short gold. I think the central banks got a bit tired of being blamed for the demise in the gold price, and they decided to put their foot down. So, basically, if they only sell 400 tons a year, including the British gold, that means that there's going to be a shortage in the market.
MONEYWEB: But what about the situation that the central banks, particularly in Europe, have been lending gold to speculators? Does that form part of the deal?
NICK GOODWIN: Well, no. That was outside of the sales, because they were lending this gold out and earning what's called the "lease rate" on it, which is about 3% per annum, and it was some sort of an income. Now they've also stated that their lending is going to stop. They're not going to increase any further lending, so all the current hedge positions can only be rolled over. It means that people can't take out new, extra positions, so that's also positive. I think we need to have gold going higher probably than $300/oz. It will also stop the hedging. And then [they should] just deliver gold against the hedges that they took out in the past.
MONEYWEB: Gold Fields was brilliant last week, buying 12% of that auction at, what, $255 an ounce. Already they're making a huge profit.
NICK GOODWIN: Absolutely. Maybe they should go into gold trading. But I think, ahead, the whole sentiment is going to change. As I've said in the past year, in a falling market bad news is bad news, and good news is no news. In the rising market good news is good news and bad news is no news, so you could even find the speculators now starting to turn around and starting to go long with gold. They won't necessarily do it immediately. I think they're going to try and get the gold price down, because obviously the short position is enormous, worldwide, and they're going to try and keep the price low so that they can buy back.
MONEYWEB: You've often said, Nick, that they've now borrowed this gold from the central banks, sold it short into the market, and it's been converted into jewellery. So where do they get that gold back from, to deliver?
NICKGOODWIN: Exactly. This is the big question, because the central banks actually lend gold to what are called bullion banks, which are branches of normal banks. And the bullion banks then lend it on to the speculators, and the bullion banks actually owe that gold back to the central banks, so it's a very interesting question. We don't know how much is short. There've been rumours of between 3'000 and 4'000 tons. But it certainly is a big number, because this has been going on for about 18 months. So, as you say, I don't know where they're going to get it from. But they're not going to get back off the necks of women, and turn it back into bars ? so that could cause another run in gold later on.
MONEYWEB: What about today's increase? Is this the last for a while? Will it steady after that $20 improvement since last Thursday?
NICK GOODWIN: Yes, I think it will mark time for a while, while the market sort of absorbs this, and then I think we'll be in for another run. It's happened in the past. For instance, in 1982, gold also went up about $30 and then steadied for about two or three weeks, and then moved up, by over $100, right thereafter. And in 1985 we had the same sort of thing, so we probably won't get very steady. It's just gone through the 200-day moving average, which is $273, which is a very important area, so I think from here it's up and away. Also, what's interesting ? I think I've spoken in the past about the fact that, when they really drive the price down in a spike, it can turn around again in a spike. On this graph you can see, in 1982, how it turned around, and spiked up, and in 1985 how it spiked up.
MONEYWEB: This is where we need a little camera on the Internet or on your PC screen. Just to finish off with, Nick, if you haven't bought gold shares yet, is it too late, and if it isn't too late, which ones to buy?
NICK GOODWIN: No it isn't. I think we're now seeing the gold index going higher, as Issy and Clive said, over the next 18 months to two years. I think it'll go first to about 1'500-1'600, and then probably higher to about the 2'000 area, so you can definitely still get in, and this is the first indication that the bull market is really on its way now, because in the last year the bull market has been up and down, and up and down.
MONEYWEB: Which shares to buy, Nick?
NICK GOODWIN: I think I always used to give you a portfolio. I think I'll do the same again. I would have AngloGold at 20%, Gold Fields at 30%, Durban Deep at 10%, Harmony at 20%, CAM, JCI Gold at 10%, and there's a little share called Afrikander Lease, which I like a lot, which I think is very underpriced, at 10%.
MONEYWEB: We'll give you that Nick Goodwin portfolio just before the end of the programme this evening.
By: Alec Hogg
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