Gold Rally Gets Legs!

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Editor’s note: Hi, Callum here. Let me take this moment to say I hope you had a very merry Christmas and I hope you have a prosperous 2022. Thank you so much for reading The Daily Reckoning Australia over 2021.

We’re having a break over Christmas, returning to normal scheduling on 10 January 2022. In the meantime, please enjoy my most-read article of 2021. It was published on 18 May.

This article shows that things don’t always pan out as we expect. Gold proved very tricky this year. Three times the stocks rallied, only to lose steam again. But I still think they’re worth watching from here. They are still very profitable — and darn cheap on a valuation basis. Maybe it’s 2022 that proves the ‘golden’ year! Can’t wait to find out with you!

US stocks were a little down last night.

However, the Aussie futures contract — the SPI 200 — managed to eke out an 11-point gain and close green.

The action is elsewhere currently…and right where we thought it would be.

Here’s on with today’s topics…

  1. Monday’s Daily Reckoning Australia began with the idea that the gold sector was primed to keep rallying. Yesterday’s trading was perfect proof.

Gold stocks went up in a big way.

For example, Ramelius Resources and Resolute Mining rose 7.8% each, Northern Star 6.5%, and Evolution Mining 5.3%.

The momentum is really starting to build now.

This is not something I started saying yesterday, either.

Back in February I wrote a piece for our paid subscribers called ‘Sexy Bottoms Appear in the Stock Market Too’.

The idea was that Aussie gold stocks, hammered in the previous six months, would bottom out.

That’s because they were making so much cash and the outlook for gold was strong.

This wasn’t a theoretical exercise. I gave away a free trading tip with a presentation at the time.

It was a gold stock…and is now up about 20% and looking strong for more.

What I love about this trade is that the upside was excellent if the idea worked…but we would have found out quickly if it was off base too.

That’s important. I like to find out quickly if I’m wrong so I can move on to greener pastures.

In hindsight, I was a bit early. The bottom for the gold sector came in March.

Now the gold sector is starting to attract the momentum buyers and technical analysts because the uptrend is looking so strong.

One thing that has held me back making more money on this theme is that I’m not a full-time gold analyst.

I only have adequate knowledge of a select few goldies. The same is not true for my colleague Greg Canavan.

He currently has seven gold stocks on his recommended page, including his latest one that only went out last week.

  1. Back when I first started in this business in 2012, the big issue of the day was Chinese ghost cities and the prospect of a huge Chinese housing bubble bursting. It terrified a lot of analysts.

A book released recently summed up what’s happened since, called China: The Bubble that Never Pops.

The bubble is still inflating. See this report…

China’s home prices grew at the fastest pace in eight months in April after curbs failed to stem buyer enthusiasm.

New home prices in 70 cities, excluding state-subsidised housing, rose 0.48 per cent last month from March, when they gained 0.41 per cent, National Bureau of Statistics figures showed yesterday.

Values in the secondary market, which faces less government intervention, climbed 0.4 per cent, the same pace as a month earlier.

Buyer euphoria is persisting, with investors using real estate as a hedge against global inflation.

That’s prompted authorities to issue a drumbeat of statements designed to cool down price expectations.

I had to laugh after reading this bit too…

How to Limit Your Risks While Trading Volatile Stocks. Learn more.

Last week, policymakers signalled they may revive efforts to introduce a long-delayed national real estate tax via a trial.

I kid you not; I have been reading the same ‘plan’ about a tax on land values in China for seven years. It’s never got even close, as far as I can tell.

China has the same problem as Australia. It’s allowed real estate speculation to infect the culture. Now it’s almost impossible to rein it in without pissing off the middle class that have hitched their wealth to the property market.

Chinese ownership of real estate, as a percentage of personal assets, is even more extreme than in Australia. That’s for those that can afford the entry price.

The rest of the country is shut out of much of this ‘wealth’ creation because they’re too poor to buy in.

The Chinese property sector ties in heavily with the outlook of iron ore, by the way. Construction uses a lot of steel.

And what do we see on this?

  1. See this snippet from this report

OCBC economist Howie Lee said the bank is forecasting that iron ore will test $US250 a tonne in the next 12 to 18 months.

Property investment, building sales and floor space under construction in China all posted strong growth rates in the first quarter, Mr Lee said, adding that automobile sales are close to pre-pandemic levels in the nation too.

“China’s new infrastructure projects have been estimated to total 10 to 20 trillion RMB from 2021 to 2025, which means the demand for raw materials now is only just beginning,” Mr Lee also said.

Regards,

Callum Newman Signature

Callum Newman,
For Money Morning

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About Callum Newman

Callum is a feature editor for Money Morning. He covers areas of interest arising from world markets and the global economy that could mean new investment opportunities for Aussie investors.

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