Gold Stocks, Durban Deep + More
Dr. Clive Roffey
The South African Government’s introduction of its proposals for the Mineral and Royalty Bill for discussion prompted the usual out burst of hysterical condemnation. It was automatically assumed that the contents were cast in stone and not, as clearly stated, points for discussion.
A 3% royalty on income is proposed for the gold mines. Frankly if the gold price goes above $400 this will be a drop in the ocean. But there are several provisos that need to be discussed.
This royalty only comes into effect once the mines have applied for their new format mining licenses, and this only has to be done within the next five years. This implies that the royalty tax will only be applied in five years time. There are significant reductions in the tax for those mines choosing to enter the scheme before the five year period.
But the main consideration is that marginal mines, of which Durban Deep is the most marginal, can apply for exemption. The Government has made it clear that its intention is not to put the jobs of miners in marginal mines under threat. Durban Deep could actually benefit from this proposed legislation.
Bullion is at a critical juncture. All my data indicates that a serious reversal of the downtrend is very close at hand. Once above $335 I expect to see a very strong surge in the gold price.
It would not surprise me to see the gold price over $400 by mid year. This is NOT a bear market but the corrective phase from the May peak. Once this correction is over the share prices will far exceed the values of the May peaks.
My value analysis of gold stocks indicates that they are better value now than they were at the start of the big bull run in late 2000. This is a huge buying area for gold shares.
In total contrast the Dow continues to look sloppy. A retest of the 7200 lows is more than likely in the near future. Global equities are locked into a long term bear market that has at least one or two years still to run.
I have maintained that the Iraq conflict is only a minor player in the unfolding gold bull market. I listen to numerous commentators stating that the US economy is likely to grow this year and next. Quite where they obtain their data is another matter. All my analysis indicates a lack of growth globally for quite some time. So I am sticking to my stagflation scenario.
Certainly the gold market has given us a bumpy ride since last May. But this is very close to ending and turning into a brand new bull phase in which all the previous highs of last May will be surpassed.
I have been inundated by worried holders of DROOY. My message is RELAX. Yes this particular share has taken a pounding from the bears. But once the gold price starts to move back above $335 you will see one of the fastest recoveries on record.
All the oscillators are in major oversold positions. You DO NOT sell in oversold areas, YOU BUY.
DROOY needs a price of around $350 to break even on its mining operations. It is a true marginal mine.
But above this level it flies as the profit percentage becomes exponential. DROOY is a hold and BUY more situation. As I recently wrote in an article. "If you want to make real money in the next 12 months, buy Durban Deep". I have no reason the change that analysis.
Many people who are worried claim to have held DROOY for a long time. They are afraid of losing money. Come on. You have seen it go from 90c to $6. At $2 you are still double what it was at the low.
DROOY is one of the best buys in the market and in my analysis will outperform most other gold stocks once the trend has reversed.
Finally I again detail my gold stock value data.
The line is right back into the major value level as it moved into the undervalued territory. But the point to note is that the current level is better value than that just at the start of the fierce bull run of late 2000 and as good as the value at the start of the gold share bull market in 1999.
This data is indicating huge value in gold stocks at this point of time. In fact better value than at any time since 1998.
30 March 2003
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Gold Action is a fortnightly commentary on global gold markets produced by Dr. Clive Roffey who has been a leading independent commentator on gold markets since 1969.
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