The South African Government’s introduction of its proposals for the Mineral and Royalty Bill for discussion prompted the usual out burst of hysterical condemnation. It was automatically assumed that the contents were cast in stone and not, as clearly stated, points for discussion.
A 3% royalty on income is proposed for the gold mines. Frankly if the gold price goes above $400 this will be a drop in the ocean. But there are several provisos that need to be discussed.
This royalty only comes into effect once the mines have applied for their new format mining licenses, and this only has to be done within the next five years. This implies that the royalty tax will only be applied in five years time. There are significant reductions in the tax for those mines choosing to enter the scheme before the five year period.
But the main consideration is that marginal mines, of which Durban Deep is the most marginal, can apply for exemption. The Government has made it clear that its intention is not to put the jobs of miners in marginal mines under threat. Durban Deep could actually benefit from this proposed legislation.
Bullion is at a critical juncture. All my data indicates that a serious reversal of the downtrend is very close at hand. Once above $335 I expect to see a very strong surge in the gold price.
It would not surprise me to see the gold price over $400 by mid year. This is NOT a bear market but the corrective phase from the May peak. Once this correction is over the share prices will far exceed the values of the May peaks.
My value analysis of gold stocks indicates that they are better value now than they were at the start of the big bull run in late 2000. This is a huge buying area for gold shares.
In total contrast the Dow continues to look sloppy. A retest of the 7200 lows is more than likely in the near future. Global equities are locked into a long term bear market that has at least one or two years still to run.
I have maintained that the Iraq conflict is only a minor player in the unfolding gold bull market. I listen to numerous commentators stating that the US economy is likely to grow this year and next. Quite where they obtain their data is another matter. All my analysis indicates a lack of growth globally for quite some time. So I am sticking to my stagflation scenario.
Certainly the gold market has given us a bumpy ride since last May. But this is very close to ending and turning into a brand new bull phase in which all the previous highs of last May will be surpassed.
