The economically damaging troubles in our mining industry cast a black cloud over the sector, yet the JSE Resources 20 index has leaped 14% in the past nine working days. The final surge came on news of the US Fed’s intention to buy $40bn mortgage bonds a month. But, as could be expected, the non-precious miners have scored the most.
The chart shows the index surging upwards though a standard deviation channel that’s been in place almost all of this year. A buy signal has been given with an upward break through the single line of its moving average convergence/divergence (MACD) indicator. This puts the indicator back in positive territory above the dashed zero line.
However, the upward rush has placed the index in a short-term overbought position, 13% above its equilibrium, which leads me to expect a pull-back. However, for the longer term, it has broken upwards though a triple top and we have a longer-term count from its current 513 to around 619.
Major index constituent Billiton has risen 15% in the past ten days and next largest constituent, Anglo, by 24%. Third largest, Sasol, dogging the oil price, has risen 17% since early July. Collectively the three account for 70% of the index.
Gold and platinum prices are surging both in dollar and rand terms, but while miners remain on strike, less is produced which means less can be sold. This, coming at a time when the low rand/dollar exchange rate could boost exports, is a double whammy to producers. Therefore gains in precious metal producers, Anglogold-Ashanti, Implats, Goldfields, Angloplats and Harmony, which collectively account for about 25% of the index, have been limited.
While mining strikes overhang the market, a headlong dive into resources might be speculative. When the time to buy does come, a Satrix Resources ETF might be the best route. Rather than gold shares, already mined gold, via the Newgold ETF, seems a safer bet. However, assuming these troubles do not spread to other mines, a near-term nibble at non-precious metal producers could prove to be sweet.