No end in sight for this booming sector

Wednesday, 11 December 2019
Adelaide, Australia
By Bernd Struben

  • Markets
  • Gold lighting up investor radars

Wine is a big deal in my neck of the woods here in South Australia.

Not drinking it, so much. At least no more so than across the rest of the country.

But wine production in and around the Adelaide Hills is massive.

This was reinforced over the weekend when we took a family drive to Wellington. That’s on the Murray River, close to where it opens out into Lake Alexandrina.

It’s a beautiful drive that takes you through Langhorne Creek, with vineyards stretching to the horizon along both sides of the road.

You may have heard of Langhorne Creek. If not, I imagine you’ve at least heard of the wine rich Barossa Valley. Or McLaren Vale.

In South Australia alone the wine industry employs some 8,500 people.

Like I said, it’s a big industry. Though not nearly so big, on a national level, as many people believe.

According to Wine Australia, Aussie wine exports in 2018 reached $2.8 billion. That’s up 10% on 2017. Solid growth. And certainly no chump change.

But that pales in comparison to what we dig out of the ground. In fact, Australia has just clocked a record year for mining exports.

Iron ore and coal continue to duke it out for the top export spot. With the surge in iron ore prices over the winter, iron nudged coal out to take first place.

In the 2018–19 financial year, iron ore exports reached $77 billion. In June alone iron ore exports raked in $9.9 billion…the most ever for any single month.

At $69 billion, coal comes in a close second. An awkward reality check to those advocating an immediate end to the industry.

A bit further down the list comes liquified natural gas. LNG exports brought in almost $29 billion. Showing just how rapidly this sector is growing, that’s more than double the export figure from one year previously.

Then there’s gold. Exports of the yellow metal were just shy of $12 billion. That’s also a record high for any one year.

And with global demand for bullion heating up, the year ahead could easily see that record swept away.

More, after a look at the markets…

Markets

Overnight, the Dow Jones Industrial Average closed down 27.88 points, or 0.10%.

The S&P 500 down 3.44 points, or 0.11%.

In Europe the Euro Stoxx 50 index closed down a fractional 0.40 points, or 0.01%. Meanwhile, the FTSE 100 lost 0.28%, and Germany’s DAX closed down 34.89 points, or 0.27%.

In Asian markets Japan’s Nikkei 225 is down 30.96 points, or 0.13%. China’s CSI 300 is down 0.036%.

The S&P/ASX 200 is up 40.8 points, or 0.61%.

West Texas Intermediate crude oil is US$59.08 per barrel. Brent crude is US$64.34 per barrel. That puts crude near the top of my forecast range for 2019. Though, barring ramped up tensions in the Persian Gulf, it’s unlikely to rise much further.

In an unwelcome reminder to OPEC+ — which just committed to increased production cuts through March 2020 — US crude inventories look to have surged over the past week…rather than fallen.

From Bloomberg:

Futures in New York edged lower after closing at the highest in nearly three months. The American Petroleum Institute reported a 1.41 million-barrel build in crude inventories last week, according to people familiar with the matter. That runs counter to a Bloomberg survey of analysts predicting a draw.

We’ll get the official numbers from the US government’s weekly inventory report overnight our time. I reckon the Saudis are on the edge of their seats.

Turning to gold, the yellow metal is trading for US$1,464.11 (AU$2,150.25) per troy ounce. Silver is US$16.67 (AU$24.48) per troy ounce.

One bitcoin is worth US$7,234.21.

The Aussie dollar is worth 68.09 US cents.

Gold lighting up investor radars

I’ve spent a good bit of time writing to you about gold over the past months.

For good reason.

The objective here at Port Phillip Insider is to put our editors’ and analysts’ best investment ideas in front of you. Even before gold began to rocket back in May — hitting a record high in Aussie dollars in September — the gold sector was lighting up many of their radars.

Gold edged up again overnight. While still down 6.4% from its September peak, it could blast past that record in 2020.

Of course, there are no guarantees in this world.

But Aussie gold expert Shae Russell is convinced the yellow metal is trending near the bottom of a short-term price correction. Which led her to make five specific recommendations to potentially make outsized gains from the gold sector. But only if you get in before the next phase of the boom kicks off.

As mentioned yesterday, Shae is the editor of The Daily Reckoning Australia. That’s a free daily investment e-letter put out by our friends at Fat Tail Media (FTM).

With a keen eye on the remarkable opportunities she sees coming in the Aussie gold space, Shae (via FTM) also just launched a new introductory advisory service. It’s called Rock Stock Insider.

If you haven’t checked it out yet, you can get the full details here.

Now, we covered the surge of central bank bullion buying yesterday. A surge that’s seen central banks snap up 20% of the global gold supply. (If you missed that instalment, check your inbox!)

But as you can see in the graph below, it’s not just government run banks hoarding gold:



chart image
Source: Bloomberg
Click to enlarge

Some gold ETFs are backed by physical bullion holdings. Others are not. But the demand for exposure to gold (via ETFs) looks like it’s about to post its own new record.

That’s not surprising after posting its best annual gains in nine years.

From Bloomberg:

Bullion is heading for the biggest annual advance since 2010, outperforming the Bloomberg Commodity Spot Index, as a year dominated by trade war vicissitudes and a trio of Federal Reserve interest rate cuts propelled the traditional haven to the forefront.

As for 2020?

Like I said. The future doesn’t come with guarantees. Only best guesses.

UBS and Goldman Sachs are both forecasting gold to reach US$1,600 per ounce next year.

Shae Russell and her host of industry insider contacts believe that’s highly conservative.

To find out why — and Shae’s top five ways to play the next leg of gold’s boom — just click here.

That’s all for today.

Tomorrow I’ll be writing to you from our Melbourne HQ, where I’ll be packing in some meetings before Friday’s annual office Christmas party.

Cheers,
Bernd