Not Yet Time To Buy Gold Stocks

This story features REJECT SHOP LIMITED, and other companies. For more info SHARE ANALYSIS: TRS

By Michael Gable 

Aside from Iraq, the other hot topic affecting markets at the moment has been the hit to consumer confidence since the federal budget last month. This has resulted in some companies exposed to the consumer cycle being sold off and downgrades coming through for others. The Westpac-Melbourne Institute Consumer Sentiment Index was released last week and it rose 0.2% to 93.2 after falling 6.8% in May. So while it hasn’t bounced back strongly yet, it has certainly stopped falling.

An inevitable bounce would result in renewed support for some of the companies that have recently sold off. The key however, is to find those whose earnings are less affected and are likely to bounce back pretty strongly. As an example, companies such as The Reject Shop ((TRS)) highlighted the unseasonably warm weather as also being a contributing factor. So we need to find companies that are not also affected by the weather, only those that have come off due to a temporary setback in consumer confidence. JB Hi-Fi ((JBH)) is an example of a stock sitting at a good support level that is likely to bounce back from here. Another example that we have found is Flight Centre Travel Group ((FLT)). In this type of market it is hard to find value, but there is an opportunity here with FLT.

Also in today’s report we have a look at the spot Gold price.
 

In mid March, the USD price of gold started to come off sharply. You will then notice that for nearly two months after that, is started to consolidate before finally breaking down again a few weeks ago. That drop down doesn’t appear deep enough to end the move. The recent rally up in the last couple of weeks appears as though it is going for a retest of that recent breakdown. That is, at any day now we could see gold turn down again and find another low towards US$1200/oz. So although most gold stocks look like bouncing here, the overall picture for the commodity is more negative in the short term. We would therefore wait for gold to be back towards US$1200 before considering a play in this area.

Content included in this article is not by association the view of FNArena (see our disclaimer).
 
Michael Gable is managing Director of  Fairmont Equities (www.fairmontequities.com)

Michael assists investors to achieve their goals by providing advice ranging from short term trading to longer term portfolio management, deals in all ASX listed securities and specialises in covered call writing to help long term investors protect their share portfolios and generate additional income.

Michael is RG146 Accredited and holds the following formal qualifications:

• Bachelor of Engineering, Hons. (University of Sydney) 
• Bachelor of Commerce (University of Sydney) 
• Diploma of Mortgage Lending (Finsia) 
• Diploma of Financial Services [Financial Planning] (Finsia) 
• Completion of ASX Accredited Derivatives Adviser Levels 1 & 2

Disclaimer

Michael Gable is an Authorised Representative (No. 376892) and Fairmont Equities Pty Ltd is a Corporate Authorised Representative (No. 444397) of Novus Capital Limited (AFS Licence No. 238168). The information contained in this report is general information only and is copy write to Fairmont Equities. Fairmont Equities reserves all intellectual property rights. This report should not be interpreted as one that provides personal financial or investment advice. Any examples presented are for illustration purposes only. Past performance is not a reliable indicator of future performance. No person, persons or organisation should invest monies or take action on the reliance of the material contained in this report, but instead should satisfy themselves independently (whether by expert advice or others) of the appropriateness of any such action. Fairmont Equities, it directors and/or officers accept no responsibility for the accuracy, completeness or timeliness of the information contained in the report.

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