Exclusive Gold Price Forecast for 2014 with Invast Financial Services

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EXCLUSIVE GOLD PRICE FORECAST

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This guide we look at the following topics:

1.0 Your way of thinking determines resultsWe teach you how to think like a pro trader, get organised and ready to trade.

2.0 How we think about commodities at InvastWe shed our insights into the fundamentals behind gold.

3.0 Mining is becoming harder and more expensiveWe run through recent evidence from suppliers

which suggests gold prices are heading higher.4.0 What an ASX listed CEO told us recently

We invited the CEO of an ASX listed miner to our office last year, he spoke to our clients and we

discuss what he said.5.0 What the charts are signalling

We show you how our clients have been benefiting from our weekly insights and invite you to take part in our exclusive live market webinar on 7 May 2014 which will focus on the gold price.

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Remember to register for the gold webinar!

This guide is a roadmap for trading gold but if you are after the latest detailed trading and technical levels then it is imperative that you register into our exclusive live market analysis session on 7 May 2014 hosted by our Senior Technical Strategist Vito Henjoto. Click here to register before reading on!

Invast Insights is a client only weekly newsletter which was launched in 2013. It helps traders and investors position their trades and portfolios regardless of what instrument or security they trade. This report is an exclusive version of Invast Insights newsletter made available to you only complimentary.

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1.0 Your way of thinking determines results

The purpose of this guide is to help plan your thoughts and open up your mind to trading opportunities. Commodities like gold, silver and copper have been traded for thousands of years. Some have amassed huge wealth through this trade; others have lost everything they owned. The difference between a winner and a loser is their way of thinking. People tend to service their cars every few thousand kilometres, they refurbish houses and format mobile phones or computers after some time.

Likewise, your brain needs to be rewired every so often, so that you see opportunities and filter out the noise in markets. Gold is just one key market but recent price action has us excited. We want to share these views to you. As a trader or investor, your brain and your way of thinking is your most valuable asset. The greatest risk in this business is falling behind in your way of thinking.

Traders need to mix with the best and talk with the best to become and remain successful. Some might find solace in being isolated, but this is only temporary. The market is a collection of buyers and sellers, each with personalities, thoughts and emotions. Millions of traders participate every single day in markets. It doesn’t matter if you have been trading over a lifetime or just about to enter the market for your first time. Your way of thinking will dictate your success. Your way of thinking will give you the edge over the thousands of other traders in the market place who want your money. At Invast, we aim to bring only the best ideas and opportunities to our clients by articulating our way of thinking. Gold is currently looking promising, we’ll explain why below.

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Those who want a list of quick numbers without changing their way of thinking in 2014 will be disappointed in this guide. We apologise from the outset. This isn’t a magic forecast – we don’t know exactly where markets will go BUT we try our best in putting together some sensible assumptions and from that, we find where the risks and rewards are this year. You should be aware of this when reading market forecasts – there will never be a forecaster who predicts outcomes perfectly over a period of time. Analysts who believe their own numbers blindly are either fooling themselves or lying to you. Experienced traders will most certainly agree with this. Some might get lucky over a period of time but most will eventually blow up.

Consider this. The most successful traders, analysts, brokers and investors in the world are those who have a philosophy, a system by which they base their decisions. If you open up the BRW Rich List and skim through the 100 richest people in Australia, you will see that most have built their wealth through their way of thinking – being able to seize opportunity while balancing risk. For every 100 people on the BRW Rich List there will be millions of others who have attempted the same business outcome and failed. The difference between the winner and loser is in their way of thinking.

The greatest investment you will make in 2014 will be in improving your market knowledge. When was the last time you actually invested in your education as a trader? Think of all the time and money you spent in 2013 and then write down the amount of time and money you spent educating yourself. How much time or money did you spend on housing, food, clothing, bills, entertainment etc compared to the investment you made on improving your skills as a trader. Many will realise that they have under invested in themselves.

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Well that is about to change. At Invast we are helping you start 2014 with a fresh approach. We released our 2014 Forecast Guide in January and we now release this guide into where we see the gold price going. We also publish weekly client only research with some excellent recent results.

This guide is free of charge, what is required from you though is an investment in time. We want you to use this guide as a first step in a long process of reinventing yourself to become a successful trader. The guide is accompanied by several seminars and webinars which Invast will be hosting. It is paramount that you attend these to find out how we think about gold and how we can help you change your way of thinking to hopefully become successful this year.

Before we get into the actual numbers and forecasts, we want to remind you that in the Chinese zodiac 2014 is the year of the horse. The symbol on the first page of this report is the Chinese word for horse. We aren’t experts in astrology but we like to draw some simple comparisons with everyday life. Horses are born to either race or travel and no matter how integrated they seem to be, a horse’s inner self remains powerfully rebellious. They are open to challenging the status quo and have boundless counts of energy and ambition. Horses are generally considered in Chinese astrology as being hot blooded and impatient but also gifted and intelligent.

With that in mind, ask yourself what type of horse do you plan to be in 2014? The type that is quick to act and slow to listen, bolting too hard without considering that pace of the race of challenges ahead, or will you be the horse that is sensible and able to contain their energy with the aim of finishing first among the pack as a champion?

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2. How we think about commodities at Invast

Now to the main point – how we think of gold. At Invast we tend to think of commodities in two buckets - first the industrial commodities that are used in the production of goods and services and secondly the currency commodities like gold and silver which are held for different reasons, usually a storage of wealth. Before we mention gold, we want to walk through what we think of other commodities to help give you an understanding of how we think. We didn’t just wake up one day and make up a magic figure around where the gold price is going. Our view on gold is part of an overall thought process.

One of the most important indicators we watch on a daily basis is the copper price, not because we are obsessed with the colour of the metal or its properties but because of its importance as the key lead indicator for all other industrial commodities. The history of copper use dates back to the beginning of mankind. If you are reading this note on a computer or mobile device, chances are that extensive copper has been used in the components behind the screen showing you this text.

Most experienced traders and investors refer to copper as Dr Copper - reputed to have a Ph.D. in economics because of its ability to predict turning points in the global economy. Copper is very widespread in its industrial application. It finds itself in many different products from homes and factories, to electronics and power generation and transmission.

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There are various ways to generate electricity but not many ways to transport the electricity from the generators to households or businesses except copper and other similar substitutes.

Generally, a rising or stabilising copper price suggests the market anticipating increased industrial use and also the opposite for when the price is falling. Sure, copper is not necessarily significant to the earnings composition of large companies like BHP Billiton or Rio Tinto, but it does have a spill over effect on the way these shares trade. Take BHP as an example - the largest listed company on the Australian stock market and one of the largest mining companies globally in terms of revenue. Despite being one of the largest producers of copper globally, it only generated 17% of its earnings from this commodity. Note gold doesn’t even rate a mention here. We’ll discuss why later on.

Table: BHP's 2013 earnings by commodity classes published to the ASX on 20 August 2013.

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BHP also generates around 53% of its earnings from iron ore which is a key input in the production of steel. Mills don't just produce steel for the sake of it (we hope not anyway), they will usually change their patterns based on underlying demand for new buildings which will correspond with the copper price too. The reason we watch copper so closely is because it is a much more transparent market than iron ore.

Copper is openly traded on large exchanges like the London Metals Exchange (LME) where we not only see the price being traded but also stockpiles gathered to fulfil physical delivery among traders when required. Iron ore on the other hand is usually more volatile in its pricing and historically has been subject to annual negotiations between producers and steel mills, only recently become spot traded in a fairly thin market.

Basically our point here, without going into a full academic analysis, is that copper matters and the copper price is similarly watched by large fund managers who allocate their funds into stocks based on spot copper price movements. The performance of mining stocks on the Australian market for example correlates very closely with how the copper price trades. Therefore, it is an easy reference point for us in judging where the stock market is likely to trend over a certain period.

So who are the key consumers of physical copper? The simple answer is China matters. There are various estimates out there but most tend to agree that at the moment, China is consuming around 40% of total global copper production. This might sound large on face value but on a per capita basis, China is consuming around 5.4kg per capita compared to North America which is around twice that.

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So even though China is the largest single swing factor, it is by no means using as much as other developed economies when compared to its population size. It may never do so, but we just want to paint the picture that China is important to where the copper price goes from here.

Being the largest factory in the world, China's copper consumption goes into its own domestic use but also in making products which it exports to the rest of the world. As the global economy comes out of a recession, consumers in the United States, Europe, Japan and other emerging economies are likely to buy more Chinese products which will impact copper demand.

India is also important and depending on which estimates you believe is currently consuming around 0.5kg of copper per capita despite having a population of comparable size to China. India's power needs are likely to continue growing over the next decade and it will need to invest in its electricity network in order to keep up with demand, meaning more supply for copper.

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In 2014 we expect the copper price to recover after testing the important US$3/lb level where it has previously found major support. Over the medium term, Copper producers continue to face production difficulties and the low prices seen in 2013 have forced many producers to cut back production, in turn having an impact on supplies as measured by the London Metals Exchange (LME). Below is a chart of where stockpiles finished off 2013 – coming off record high inventory levels not seen for the past five years.

Image: Copper price action during March testing US$3/lb level. Source Invast MT4.

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Copper producer Oz Minerals (OZL) disappointed the market several times in 2013 when releasing its quarterly production report. While most of the discussion was around how poorly the miner has performed, our interest was more around the trends within copper mining. Oz Minerals owns the Prominent Hill mine which is located 650km North West of Adelaide in South Australia. It is perhaps one of the most attractive geographies for mining – an open pit mine, a newly developed underground mine, access to railway and low sovereign risk.

The mine was first discovered in 2001 and has been in production since early 2009. Oz Minerals has spent many years and plenty of cash to get the mine up and running but over the past year the rate of production has fallen from above 1000,000 of contained copper down to around 80,000-90,000 tonnes this year. It is very important to get the full scope of Oz Minerals’ operations – please watch the following corporate video to get an idea of the scope of the mining operations and growth plans already in place. We aren’t talking about an insignificant copper producer at all. This business matters. The problems Oz Minerals are seeing in its production capacity are consistent with what others are reporting in the industry. Our rationale is that if a world-class deposit like Prominent Hill located in Australia is struggling to grow production, the ability of new copper over the next few years to fill the growing demand will see spot price appreciation. This point is crucial. Emerging copper producer Discovery Metals (DML) which set an ambitious goal of becoming the next Australian mid-tier producer out of Botswana has seen its share price fall from an all time high near $1.80 to around $0.03 as of the time of writing.

Discovery had been the talk of the industry as it ramped up into production from development; even attracting a takeover offer from Hong Kong based Cathay Pacific Group which its board rejected. Today, the business is struggling for survival, at the mercy of its banks as lower copper prices and production problems have caused a cash crunch.

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3. Mining is becoming harder and more expensive

So what does this all have to do with gold? One of the things we didn’t call too well in 2013 was the fall in gold price. We purchased gold in our Wealth Creation portfolio in September but we cut our modest losses early and rectified our decision with some deeper analysis. The first step in becoming a successful trader is to admit your mistakes. We’re starting off telling you that we didn’t time our gold trades too well last year. But despite the small losses, we are encouraged by what we see and if anything, sitting on the sideline has helped us become even more bullish.

Usually the earlier you admit your mistakes, the better your long term performance will be. We published views in client-only Invast Insights reports in September and October 2013 basically saying that around US$1250-1280 an ounce the gold price should find support. In late September 2013, we went through and looked at key global miners like Newcrest Mining (NCM) and pulled out what their marginal cost of producing an ounce of gold actually is. You can find that report by clicking here.

Most of the analysis we read is that gold is becoming harder and more expensive to mine but this hasn’t stopped the price from continuing to fall. Newcrest Mining (NCM), one of the largest gold miners in the world, has seen its share price collapse this year and its “all-in cost” of producing gold rising to above US$1150-1200 an ounce. Our fundamental view was that if this is the cost of production then the gold price should find at a floor near this level.

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This view is not incorrect, as we write the gold price is actually moving from around US$1250 an ounce towards US$1350 with solid support forming. We called a floor in the gold price at the beginning of the year when most analysts were calling for gold to fall below US$1000 an ounce. Our views went live with Bloomberg TV, you can watch by clicking the image to the left. It was a brave call at the time, but we stuck to our guns and maintained facts. A few months on and gold is finally starting to move.

Remember we didn’t get our gold calls right in 2013. Most analysts and investment advisors or technical analysts find it very difficult to admit their mistakes. But we haven’t, we’ve moved on. The future is more important. Rather than trying to justify why our past analysis wasn’t still correct, we think our call in September was lousy. It’s not that it was incorrect, but it just didn’t really add any value to you, our client. Our purpose though is to add value to our clients trading – not necessarily dwell on what a fundamental value SHOULD be in isolation.

Before we move onto the next section of this report, we summarise our view as follows. The production of gold is become harder and harder. This is what drives us to think that gold is set for another upward rally in the second half of this year. Global gold production is likely to peak in 2013 at around 3,000 tonnes compared to 2,861 tonnes in 2012. That will eventually provide a floor to the gold price in the US$1000-1100 an ounce range. We recently spoke to two ASX listed CEOs who are running mining companies, their views are below.

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4.0 What an ASX listed company CEO told us recently

We invited Garry Lewis – CEO of ASX listed Robust Resources (ROL:ASX) – to our office in September last year. He presented to a full house of guests and clients across a range of issues, including his view on metal prices. Lewis spoke mainly about his company’s growth aspirations, the previous success in the portfolio of ore bodies the group invested in and the ability to bring on capital at the right time to help crystalise shareholder value.

Robust Resources (ROL:ASX) CEO Gary Lewis at the Invast seminar room

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There is no doubt that Robust Resources among many other junior explorers have been heavily hit over the past few years as appetite for mining growth projects hits record low levels from the previous mining boom.

Robust Resources is an Australian-based, Indonesian-focused miner exploring for precious and base metal mineral deposits in Indonesia and the Philippines. On Romang Island, Indonesia, Robust has been exploring two projects, the southern Lakuwahi Project and the North Romang Project, since December 2008. Since that time Robust has undertaken an extensive programme of diamond core drilling, gridding, geological mapping, soil sampling and geophysics.

Robust also recently acquired the rights to an advanced portfolio of exploration and developments projects in the Kyrgyz Republic. The most attractive for us is the Andash copper-gold project which contains a measured and indicated mineral resource size of 680k ounces of gold and 170m pounds of copper at very high grades. According to Lewis, this will put a strain on supply in the coming decade. Not all commodities will witness this – iron ore for example has been expanding for the past decade and demand is coming from a huge base. The story is different for the metals though, as mining costs rise and investor appetite for funding riskier projects wanes, the amount of supply coming onto the market will mismatch future demand.

Lewis spoke about the increasing difficulty in bring on large, full scale projects in the current market environment. His company has rights to some very attractive parcels of land across the Asia Pacific region but developing these projects remains sensitive. Even in Australia, large full scale projects like BHP’s Olympic Damn expansion was put on hold last year due to the numbers not stacking up in the right order.

Lewis thinks there will be pressure on metals, particularly base metals, in the coming decade. Gold is slightly different to the industrial commodities but it also has its own set of demand characteristics. The chart below echoes Lewis’ comments; it comes from Rio Tinto as part of their extensive research in to the commodities space. It shows the supply constraints in the copper market and the challenges Rio Tinto currently sees going forward.

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The Rio Tinto charts show that grades are falling even at the most economical copper mines globally. The average grade is now slightly above 1% which means that 99% of the ore mined does not contain copper. Disruptions are rising, companies are having to spend increasing amounts of money to ensure their current mines are up to scratch and this is unlikely to get better going forward. Unless there are some major metal body discoveries in the next few years and well within infrastructure capabilities, the industry is likely to see persistent disruption to supplies. As gold and copper anomalies are generally found together, this supply outlook is consistent for both metals.

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5.0 What the charts are signalling

On 7 April 2014 we wrote the following note to our clients. Invast clients enjoy extensive weekly research in a publication called Invast Insights. The paragraphs below were only a small sample of much longer research in the weekly report. Our comments on gold at that point in time were:

“We have been bearish since October - November last year and while we haven’t seen a drastic sell off in the market as of yet, technical analysis still points to the possibility of gold tracking lower this year. The rally we saw at the beginning of the year was driven by risk aversion in the market, as emerging market crisis and civil unrest in Ukraine unfolds.

Safe havens like gold gain on the back of this unrest, although in this case gold was quickly dumped once these crises are over and economic growth globally continued to improve. It only took the market two weeks to wipe off 50% of the gains in the first quarter of 2014. In addition to this, technical analysis of gold remains bearish in the long term; even as gold pushes back close to 1400 key level.

In the short term, we are likely going to see a short recovery towards 1310 and 1340, both of which are the 23.6% and 38.2% Fibonacci retracement of the Q1 rally. Daily oscillator is currently indicating a slight oversold market condition, and we anticipate this pullback up to play out in the first two weeks of April 2014. Downside supports are located at 1280 followed by 61.8% Fibonacci level at 1262.”

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We’re glad to say that this analysis was right on the money in the two weeks following our report. The gold price remains in a sideways trending pattern and the notes above are now a few weeks old, something significant is emerging on our technical indicators in the gold market and we want to give you an exclusive opportunity to find out what we are thinking.

That is why we are dedicating a live market analysis webinar on the gold price exclusively for readers of this report. During the session, our Senior Technical Strategist Vito Henjoto will be running through the new developments which have just emerged in the gold market, he will talk through his analysis with a full simulation of his trading platform. You will see exactly where he sees support and resistance levels and he will be trading live on Invast’s cutting edge trading platforms to help position you ahead of the market.

Click here to register into this exclusive Live Market Analysis session which will be held on Wednesday 7 May 2014 at 7PM EST. This will be a very popular session, our recent webinars have booked to capacity so it is imperative that you register for this event by clicking the link above.

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Invast Research Analysts

Esho has previously held senior investment research roles with Nasdaq listed Morningstar Inc. and UK based City Index Group. He is a regular contributor to Sky News Business, CNBC and Bloomberg TV among other media partners.

Peter EshoChief Market AnalystEmail: [email protected]: 02 8036 7568

Henjoto began his involvement with currency trading back in 2004 as a full-time trader and gathered a vast amount of first-hand experience using technical analysis and in particular the Ichimoku Kinko Hyo technique. He has mentored hundreds of traders and has been a leading analyst for several FX firms globally.

Vito HenjotoSenior Technical StrategistEmail: [email protected]: 02 8036 7569

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Have you registered for the 2014 Forecast Guide?

Click on the link below to download your copy of the Invast 2014 Forecast Guide.

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Go to www.invast.com.au/insights to get a complimentary 4 week trial and receive the latest insights as they are published to our live clients.

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DisclaimerPlease note that you are receiving this report complimentary from Invast Financial Services Pty Ltd (AFSL 438 283). Invast staff members may from time to time purchase securities which are included in this or future reports. The authors of this report may or may not be holding a position in the securities mentioned. Please note that the information contained in this report and Invast's website is of a general nature only, and does not take into account your personal circumstances, financial situation or needs. You are strongly recommended to seek professional advice before opening an account with us.

General Disclaimer: This newsletter contains confidential information and is intended only for the person who downloaded it. You should not disseminate, distribute or copy this newsletter. Invast does not accept liability for any errors or omissions in the contents of this newsletter which arise as a result of downloading this newsletter. This newsletter is provided for informational purposes and should not be construed as a solicitation or offer to buy or sell any financial product. Invast Financial Services Pty Ltd is regulated by ASIC (AFSL 438 283 | ABN 48 162 400 035).

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