Gold is brewing, AUD pops higher and commodities firm - ASX futures down 16 points

Two weeks ago I wrote a piece focusing on US dollar spot gold and its relationship with the US Market Vectors Gold Miners ETF (GDX) - click here to read it. The gist of the story was that gold producers are a leveraged play on the gold price, and that a sharp fall in the gold price is accompanied by a much sharper fall in the price of gold miners. Thus, should the gold price recover, the commensurate recovery in the price of gold miners is far more swift than that of the gold price. Well, if you had have taken my idea and run with it on 22 July when it was published, you'd be losing money. The percentage spread between US dollar spot gold and the GDX ETF between this year's gold price peak on 22 January to now has continued to widen, from 19.76% on 22 July to 24.24% now. You can see this in today's first chart by comparing the change between the second and third vertical lines at the right hand side of the chart.

Back to the first chart, however, and--as alluded to in today's subject--something is brewing in the gold market in that its current period of consolidation is longer and less volatile than what we've seen over the past year. Something has to give, and there's no doubt that it could be a move lower. However, gold has a tendency to consolidate after big falls and then recover, but we'd probably need to see a big call made by one of the large US investment banks to trigger some buying, shake out the shorts and see short-covering back to higher levels.

In today's last chart I've illustrated the Australian dollar. Yesterday's rate decision--although unchanged, as expected--was accompanied by language that got traders pretty excited about the prospects for higher, rather than lower, rates to come in Australia. Why? The Reserve Bank of Australia board said that key commodity prices had pushed the Australian dollar lower and that it believes that, given the size of commodity prices falls, the currency should probably fall even further. This means that commodities are doing the job of pushing down the Aussie that the RBA would have had to have done using interest rates otherwise, to appease the board's desire to see a lower Aussie dollar. The Board also gave a confident view of the Australian jobs market given the stability of the unemployment rate and "somewhat stronger growth of employment" over the past year. I wonder whether New Zealand Prime Minister John Key's recent comments to the AFR had any influence: "Australia hasn't had a recession since 1991, but they are sort of displaying, the physical … temperament that they sort of are in recession, even though they are not." I'm not sure they plucked the most articulate excerpt here from the interview, but my guess is that John Key is saying, "Why is the prevailing economic mood in Australia displaying that of a recession when it isn't in one?" No doubt falling commodity prices and slowing Chinese growth weigh heavily on the minds of politicians and investors. Is Mr. Key right? Are Australian investors a glass half empty bunch right now or is there good reason for it? We'd love to hear your comments.


Source: Rivkin, Saxo Bank

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How to apply for the FGG IPO

As was the case with Future Generation Investment Company (FGX), Rivkin will be working with its broking partner CMC Markets in donating the broker stamping fees to charities associated with the investment company’s cause – in this case, youth mental health and homelessness.

With this in mind, we strongly urge you to follow the following steps accurately so Rivkin can add to the philanthropic nature of this IPO.

  1. Visit http://www.futuregeninvest.com.au/Global/prospectus.pdf to download and read the prospectus
  2. IMPORTANT: complete the Broker Firm Application Form on page 87 of the prospectus, this way we can donate the stamping fees
  3. Ensure you have sufficient funds in your Rivkin Securities stockbroking account to pay for the stock
  4. Enter the Broker Code 02662
  5. Enter the Adviser Code 0001
  6. Email your application to customerservice@rivkin.com.au or post it to:

Rivkin Securities FGG Offer
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Don’t have a Rivkin Securities stockbroking account? Open one now by emailing customerservice@rivkin.com.au (your Relationship Manager will call you back and pre-fill forms etc.) or phoning 1300 748 546. Our online brokerage is $11.00 or 0.11%, $9.90 or 0.11% for SMSFs that use Rivkin Super. PLUS we go the extra mile and donate non-core earnings like broking fees from this IPO to charity. You’re doing yourselves a favour and doing those in need a favour by getting involved.

This article was written by Scott Schuberg, CEO of Rivkin Securities Pty Ltd. Enquiries can be made via info@rivkin.com.au or by phoning +612 8302 3600.

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This article contains information about foreign exchange contracts, which are considered complex financial products. Please click here to read ASIC's foreign exchange trading article before considering an investment in foreign exchange contracts. 

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