What Mattered Today; Seasonality for Gold

James Gerrish

Another day that saw the best of it in early morning trade before sellers started to dominate from around 10.30am onwards. Iron Ore was sold in Asia with Futures trading around 2% lower which prompted a ‘sell the strength’ trade for the commodity stocks – Fortescue gave back early gains to finish slightly lower, while the likes of BHP and RIO finished mid-range for the day – but higher in aggregate. Most love was again in the Gold stocks which have just come off a decent week - Newcrest adding +2.92% today while the mid-caps were led by Evolution (EVN) which ran up +6.64%. More on the gold trade later.

Despite the selloff in Iron Ore after Cyclone Joyce failed to deliver any real fire and fury, the Material plays were still best on ground adding +1.07% while the Energy sector had a breather down -0.82%. An overall range today of +/- 33 points, a high of 6103, a low of 6070 and a close of 6077, up 7pts or +0.12%

**No trade in the US today**

ASX 200 Intra-Day Chart

ASX 200 Daily Chart

CATCHING OUR EYE

1. Newcrest Mining (NCM) $23.62 / 2.92%; Golds were in focus today and did pretty well, largely on the back of 1. Continued selling in the $US and 2. It feels like buying ahead of some event risk, just not sure what event! We often see that Gold is a good leading indicator / canary in the coal mine for some impending weakness and the moves last week were strong + the moves in Aussie Gold stocks were also good today – the big question is where will the selling come from.

The local Aussie mkt looks soft and we can easily see this trend lower – its underbelly seems weak, yet the US market looks exceptionally strong, largely on the back of looming tax cuts that are clearly good for corporate profits and will likely feed to upbeat guidance from the upcoming reporting season BUT potentially more importantly, looming tax cuts have disincentivesed selling strong performing equities. Why sell now and pay higher capital gains tax if you can hold tight and pay a lower amount in the future? Makes sense and helps to explain the unabated rally for US stocks with the winners of the past year or so continuing to drive the mkt higher – however it also provides a good catalyst for selling post the cuts coming in.

Anyway, back to Gold, from a seasonal perspective, January is strong and usually provides a decent selling opportunity, which is actually the case with the boarder market and we’re certainly conscious of that. In terms of the portfolio’s we manage that incorporate options, we’ve now skewed our options positions to further hedge the downside. We own Newcrest

Gold Seasonality

Newcrest Mining Daily Chart

2. Vocus Communications (VOC) $3.24 / 0.93%; Announced a new divisional operating structure today to hive off their enterprise and wholesale divisions of its Australian business into separate operating segments – the cynic in me suggests that it’s a ploy to refocus the markets attention elsewhere and to confuse analyst models that compare like for like on a rolling basis. If you change operating entities and restructure, it makes that comparison harder. No foundation to that claim of course however I’ve seen that sort of thing before from companies that are struggling in terms of performance. Stock up slightly on the news but nothing to get too excited about…We don’t own Vocus

Vocus Daily Chart

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Have a great night

James & The Market Matters Team

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