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Q2 – A Record Quarter For Goldminers

By O B Research

When we write this, gold is approximately 2% off its all time high, yet the stock of quality gold producers are lagging big time. Of course some of that can be explained by the general market view, which certainly is not very rosy right now. However, we sense there is some scepticism in the air, and also maybe a bit of “summer doldrum fear”. We feel quite strongly, that selling now and stand on the sidelines for a couple of months, can be a big mistake. Not to say a costly one.

The average gold price for the second quarter should come to around $1195/oz, resulting in the highest quaterly price average in history. Add to that, lower cash cost for those producers with cost in another currency than the currently strong US$, an excellent example would be our top pick OceanaGold with their cost being in NZ$.

All in all, we are convinced that when the quarterly reports starts coming out end of July, the market will be greatly surprised by the profit margins that will come to light. We do not believe the gold stocks are ready to “cut loose” from the general market just yet, so in crasch scenario, gold stocks should also go down, but maybe less than the general market. Hopefully the markets stay stable and if so, we are convinced that today’s prices are bargains in many of the mid tier’s.

Team O B Research

OceanaGold increase exploration at Reefton goldfield

The expanded exploration program includes a drilling program and technical/economic assessments for a potential Reefton underground operation. Historical production and recent drilling suggests continuation of economic mineralisation below the Globe Progress pit. This will be analysed for the potential to exploit via underground methods in addition to likely expansions of the current open pit. Following the drilling campaign, a pre-feasibility study will be undertaken.

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Gold Completes Cup & Handle

When we take a look at the one year chart for gold, we can see a completed cup and handle formation. What is needed now for a 20% run over the next 6 months, is a decisive break through the resistance level at $1,250.
Gold closed at $1,255.70 on friday and that is positive, but still not a confirmation of the break through. We need closing prices three days in a row above $1,250 for confirmation. When that happens we should see gold making new all time highs, which could reach as high as $1,450-1,500 around year end.

If we zoom in on the daily chart, we see nice support from the mid Bollinger band at $1,232.
Otherwise the daily moving averages are a bit down in the weekly chart so they do not contribute with any support in the short term.

All in all, it is looking very bullish for gold, especially if we get a decisive break above $1,250. First hand target is $1,300 which derives from the reverse head and shoulder formation from March-08 through September-09.