Housing Bubble and The Economist
After spending some time away from the press the housing bubble has reared its ugly head yet again and the basis of the article in The Economist managed to finds its way into our Weekend Australian today. I covered the housing bubble here in previous articles and there is little need to harp on about it, however only today have I convinced my sister that she is unlikely to hold onto her paper profits from a timely entry into the London unit market. Just like SARS has seen its press coverage fall dramatically just because it is not covered in the press does not mean the problem does a "Copperfield". Those that witnessed the hysteria surrounding the AIDS epidemic could now almost be asking the question, "What ever happened to it?"
It is a case of wages rising to meet housing prices or having housing prices collapse to enable ownership. With the world teetering on the brink of another nasty recession that could yet unfold into a depression to rival that of the 1930's I doubt whether a school teacher or police officer is going to see their pay double from around $50,000 to $100,000 so they can partake in the "Great Australian Dream".
Many attempted to pick the top and were out on their timing and I was one of these however my argument is, "Try selling when the avalanche is underway". For those in the precious metals market many experienced further pain before a number of equities actually managed to turn positive.
Australian Gold Sector
The sector continues to punish those companies that fail to meet the giddy expectations placed on them. Only this week have we seen Gindalbie (GBG) fall away on production issues and a Rivkin sell recommendation along with Kingsgate (KCN) who up until recently had enjoyed an excellent flow of good news. The market was clearly unimpressed with KCN's rising production costs and it would appear that the first sign of bad news finally triggered investors to lock in some profits (or losses depending on their entry).
As I have stated previously we are not yet in the wonderful market period where every gold stock will perform well. Even the most popular ASX gold company Croesus (CRS) has struggled in the low-mid fifties after threatening to break through $1.00 in January. Stock selection remains the key, although I have noticed an increase in buying in the more speculative issues in preparation for the next stage of the PM bull market.
Silver…. another false start
Silver has been frustrating to say the least, and again once a break of $5.00 looked likely we find it now struggling to hold $4.50. The two major Australian silver plays Macmin (MMN) and Malachite (MAR) continue to drift lower, although both are starting to again find support with major drilling programs underway and/or about to commence for both.
With the silver price under-performing gold of late, silver investment could now well be skewed well towards being "contrarian" which is not such a bad thing in the current climate. The second and third tier silver plays are also struggling although their gold exposure is managing to at least maintain their current share prices. The silver story has not changed despite a lower deficit, and if anything the emerging new uses and increasing investment demand should flow well into some form of recovery down the track whether it is short-lived or not.
Exploration…the new driver
It has been pleasing to see excellent follow up drilling results from Alkane (ALK), and Ramelius Resources (RMS) announcing an immediate follow up to encouraging sniffs around Coolgardie. With the nickel price continuing to perform well there has also been renewed strength in the sector with MPI Mines (MPM), Independence Gold (IGO) and Western Areas (WSA) all partaking in further share price rallies.
Programs I am currently following include,
Recent Strong Performers: Alkane, Emperor, Equigold, Gympie, MPI Mines, Newcrest, Sino Gold, Sons Of Gwalia.
Share Price Weakness: Gindalbie, Kingsgate, Croesus, Durban.
Steady As She Goes: Bolnisi, Dalrymple, GRD, Herald, Newmont, Oxiana (new entrant to list), Placer, Sipa, Triako, Troy.
Selection For Next Outperformer: Herald Resources (HER)
The current volatility in the gold and silver price is not being fully reflected in the prices of a number of ASX listed companies. Whilst the junior explorers are starting to crawl away from their rolling lows, interest is negligible on an historical basis. It should be emphasised that once "gold fever" strikes the majority will chase a number of stocks vigorously and gold enthusiasts will again slowly adjust to a higher price environment that will again bring along its own frustrations.
2 June 2003
Disclaimer:
I have direct and indirect interests in the following securities, Austminex, Malachite, Ramelius, Herald, Independence, Mt Conqueror. Clients have holdings in the majority of the stocks contained within this article and may alter these holdings without notice. The information provided as been sourced from ASX announcements and is believed to be accurate. The article is for general research purposes and is not investment advice.
About the Author
Tony Locantro is a Perth based Senior Private Client Advisor specialising in the junior resource market. He is the author of "The Green Room, A Guide To Speculating On The Australian Stock Market" and presents on resource stock investment. He is a contributor to a number of precious metals related forums.
Contact Details:
locantro@iinet.net.au for further information and/or contact details.