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Small Gold Stocks on ASX Looking Like 2008
Contributed Opinion

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Barry Dawes of Martin Place Securities looks at small gold stocks on ASX and the Australian dollar in gold, which is reaching near record highs.

Take advantage of June tax loss selling and pick up bargains of a decade in small gold stocks.

What the ….?

What the ….?

What the…..?

What the hell is really going on here?

The past three years have been a one-way decline in the fortunes of almost all gold stocks despite record US$ and AU$ gold prices

The XGD ASX Gold Index peaked in July 2020, and the past two years have given us an essentially sideways market marked by some hopeful rallies and despairing sell-offs.

But you wouldn't expect this sort of market at a time when demand for gold has been so strong, especially from central banks and now the ETFs have moved back into accumulation mode.

  • March Qtr 2023 was 34% higher than any previous March Qtr (2013).

  • Demand for gold in ETFs is rising too (except for Europe)

All this has given us all-time highs in the US$ gold price and even higher prices in almost all other currencies.

But this gold index has found it difficult to get much traction over this time.

Do note though it is supporting a long-term downtrend.

Of course, the composition of the S&P ASX Gold Index leaves much to be desired (it still has SSR.ASX, which is domiciled in Canada and operates in Turkey with no Australian assets, but at least they removed Rare Earth explorer DRE.ASX) and in the past has included iron ore, oil and gas and other strange non-gold companies.

But the US$ gold price has held up well here so should have gold stocks.

Gold stocks in Nth America have been declining as well, but there may be light at the end of this tunnel.

Are we at the end of this decline?

Looks like it.

Gold is doing better than some financial assets.

For Japanese Yen holders gold has been spectacular as that currency dies.

And, of course, it looks good in AU$.

But ASX XGD gold stocks have seen their market rating against AU$ gold decline for over 15 years.

Why is it so?

Weakness in 2022 brought this XGD/AU$ gold ratio back to the levels of 2015 when gold was just US$1045, so it is looking like a change is coming.

This can be seen here on the weekly as it wedges itself for a significant break.

A resolution to the upside is coming soon.

Looking at important drivers like gold production, the latest Australian Gold Production statistics for Dec Qtr 2022 show a healthy position.

Output peaked in 2020 with Fosterville and Cadia grade highs and subsequent declines, but WA is now back at near-record levels.

Not giving the impression of an industry in crisis.

And when the A$ gold price is factored in, the Australian gold industry had notional annualized revenues in the June Qtr 2023 of a new record >AU$30bn.

Of course, not all this gold is produced by ASX-listed companies.

Again this is not an industry in crisis.

Certainly, costs have increased, but the worst is over in terms of increases.

So there should be no rational reason for these sorts of gold stocks here to underperform so badly.

And now this technical wedging formation is telling us the market, at last, thinks so too and will act quickly to correct it.

This Small Cap Gold Project Developers Index has been expanded to 12 companies you know and love, so it should improve its reliability.

This index is wedging.

Wedges are pricing compression.

The selling pressure will be overcome by buying pressure.

Gold stocks vs. AU$ gold are about to reverse.

And to now outperform the XGD index.

We have talked about the seasonal impact of gold.

Gold is declining into this seasonal low.

The first week in July should do it, although gold may have done a reversal overnight.

Intraday volatility continues within this wedge which is over three months old, and gold has been working well within it.

The move overnight may have been a reversal.

The longer the period, the more powerful the breakout.

Gold may have also picked up that parabola here.

The US$ remains firm.

As pointed out yesterday, U.S. consumers are in great shape, and U.S. equities are strong.

No recession is coming there.

Gold is the metal of prosperity, and all the signs are there for a period of U.S. prosperity ahead.

The major currencies, in contrast — Euro, Yen, Swiss Franc, and Sterling — were all weak again and heading much lower.

And all those BRIC currencies just keep declining in their very long-term bear markets.

US$ bears simply don’t understand.

Buy gold

Buy gold stocks

US$ to rise much higher.

Timing is everything.

Heed the markets, not the commentators.

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