Offshore markets have taken a breather overnight, with the US Dow Jones sliding 0.2%, and the S&P 500 closing flat. Following five consecutive days of gains, the ASX has turned south, despite strong results from a number of big blue chips.
Doing the damage is our unemployment rate jumping to 6%, its highest level in more than a decade. Not surprisingly, the Aussie dollar is on the nose, plunging back below 90 US cents. How it even snuck back up that high in the first place has got me dumb-founded. I’m with the International Monetary Fund (IMF) who reckon the Australian dollar is too high and needs to come down by as much as 10%.
What all this does is put Westpac’s Bill Evans’ forecast of two interest rate cuts later this year, taking the official cash rate to 2%, firmly back on the table. Yes Foolish readers, the era of ultra-low interest rates is here to stay… all of which means stocks paying fully franked dividends will likely remain as popular as ever.
Telstra dials up the dividend
Telstra Corporation (ASX: TLS) shares were up 1% this morning, after delighting the SMSF Army with news it has increased its fully franked dividend, from 14 cents to 14.5 cents. It’s the first dividend increase in eight years, but shows how the company’s future is improving.
On top of that, profit has risen 9.2%, despite revenues growing only 3.5%. The gorilla’s dominance of the mobile market continues, with another 740,000 retail mobile customers added, taking the total to an amazing 15.8 million. What was surprising was Telstra’s decision to fax its results through to the ASX. And here I was thinking the fax had gone the way of the dodo.
Optus, Australia’s second largest mobile operator, also hasn’t done too badly either reporting a 41% increase in net profits. Vodafone – you are today’s loser.
Those lovely dividends are better than a poke in the eye with a blunt stick, term deposits, bonds and bitcoins, dear readers.
It seems three major bitcoin exchanges have frozen customer withdrawals due to a ‘technical glitch’. The cyber currency is currently valued at US$630, having fallen from US$1,100 in November 2013. David Bailey, who sells physical bitcoins, says he was ‘a bit unnerved’ when two of his transactions ‘simply disappeared’. “If I was fresh to Bitcoin, I would have been very scared.” Avoiding the cyber currency is a virtual no brainer if you want to sleep well at night.
But we better not forget about the gold bugs
What is perhaps a better investment than bitcoins is gold — although some here at the Motley Fool would say there was no difference!
The yellow metal has defied predictions of a fall to US$1,000 or below. (That’s what happens when analysts extrapolate short term movements into long term forecasts). Gold has hit a three month high, rising to US$1,290 an ounce overnight. And Wells Fargo’s head of trading strategy Rick Bensignor is bullish saying… “Gold can probably rise to between US$1,350 and US$1,375 in the next several weeks.”
I did suggest that gold could soar this year in this article, thanks to a recovering US economy and potentially higher inflation. I may have got the reason wrong though.
China’s love affair with gold
It seems China’s love for the metal knows no bounds, with trading volume on the Shanghai Gold Exchange on Monday totalling 25,725kg, the highest level since May 2013. China ‘consumed ‘1176 tonnes of gold in 2013, 41% higher than the previous year, with 717 tonnes of it going into jewellery, 376 tonnes of gold bar investment, 49 tonnes in industrial use and the remainder in gold coins and the like.
Some commentators have suggested that China may be worried about its foreign currency reserves being heavily weighted to US securities and US dollars, and is upping its gold purchases to diversify. Whatever the reason, a rising gold price and a lower Aussie dollar are great news for Australian gold miners.
Off his rocker? Maybe not
Back in early December, we thought Motley Fool Share Advisor stock picker Scott Phillips was off his rocker when he said he was starting to take a look at gold stocks. Of his five preferred, Silver Lake Resources (ASX: SLR) is up 83%, Northern Star Resources (ASX: NST) up 62%, Kingsgate Consolidated (ASX: KCN) up 46%, and Beadell Resources (ASX: BDR) and Kingsrose Mining (ASX: KRM) are up 13% and 5% respectively. The S&P/ASX 200 index is up just 2.2% since then.
Is this the lowest cost gold producer in Australia?
Another gold miner that could have a massive future and is flying under the radar is Doray Minerals (ASX: DRM). According to broker reports, Doray’s Andy Well mine is one of the highest grade gold projects in Australia. With all in sustaining production costs of $949 an ounce, it could be THE lowest cost mine in the country.
Doray produced 24,000 ounces in the last quarter, which at the current exchange rate of US 90 cents has them generating earnings of $480 per ounce. In other words, around $46 million earnings per year — for a company with a market cap of just $129 million. As a result, Doray is paying back debt rapidly, and well known stock picker David Paradice‘s Paradice Investment Management has recently increased its holding in the company to 6.6%.
Doray has recently gone into a trading halt to raise capital, but once completed, gold bugs might want to add the company to their watchlist.