DROOY

[David Randolph]

I'm a long term bull on the gold price, and yesterday we've had a breakout to almost 17 year highs:



This is even more significant if we consider that the USD has been rising against major currencies over the last 6 months or so:



I say this because gold was being used as an hedge to a falling US dollar. That was one of the principal causes for the rise in gold, analysts said. Well, not anymore. Now gold and the dollar are rising in tandem, and that means gold is rising on its own fundamentals, not because of currency arbitrage. This is signaling inflation on the horizon too.

I wrote about this macro change on GG's thread (my dear GG, why did I sold you?  ): the fact that gold is rising without the help of a falling US Dollar is a meaningful fundamental shift and it means gold will move a lot higher from current levels.

So, if gold is rising and that trend will probably continue, we want to look for gold related stocks. There are a number of them that look attractive (GG is the best long term holding if you ask me), but on a shorter term view I find the South African gold companies the most promising.

There was a problem with these stocks, you see, gold is traded in USD, so these companies sell gold for USD. But, their operations are primarily in South Africa, so their costs are in RAND. The South African Rand rose from $14 in 2002 to less than $6 in early 2005 as you can see on the long term chart below:



The gold price long term rise wasn't enough to compensate for a falling USD. Gold production and sales were up, but revenues weren't, because of this currency issue. In the meantime costs rose, so profits declined and so did the share prices, of course.

But now we have some profound changes in the fundamental picture of these currencies relationships:

1) First of all, gold now is rising in the face of a strengthening dollar. No more currency arbitrage, gold is bullish because of its intrinsic fundamentals.
2) The dollar isn't on a free fall anymore against major currencies of the world, in fact, the USD Index is up in 2005.
3) The Rand is no longer getting stronger and stronger against the dollar and probably the trend has been reversed in 2005 in favor of the dollar.

This means the following for south african gold companies:

1) With gold price up, their proceeds from gold sales will naturally rise.
2) Revenues will rise even more, because they are no longer being eroded by a free falling USD.

So, it is clear we want to buy some South African gold company's shares. I've been looking and the one that suffered the most from this dollar/rand relationship is DROOY. The stock went down from a high of $5.80 in April 2002 to a low of $0.30 in April 2005. Now the long term trend has reversed and yesterday the stock rose 10% on volume above average.

Check the long term chart:



And the short term chart:



I'm buying DROOY for the 3 Stocks on Fire Portfolio at today's open.

(This recommendation was made by David Randolph from 3 Stocks on Fire, and he will update this analysis everyday after the close until he sells the stock. The 3 Stocks on Fire Portfolio is up 159% since inception on 28th of April 2005. 3 Stocks on Fire is a Community of stock traders and investors. Our 3545 members exchange trading ideas and strategies on our message boards everyday. We welcome you as a new member of the 3 Stocks on Fire Community, please take 10 seconds to register and receive our free newsletter)

[metro]

You may want to look at this thread as many of the movers are listed.

http://www.3stocksonfire.org/trading/index.php?topic=2215.new#new

There is a lot of media now on gold so some stocks may be short term extended and others not moved to much yet. Often the tiny ones move last. Gold itself is near the December high so could break out but would be better to consolidate a bit.

Here is the end of gold chart



The 10=min index chart shows negative divergence suggesting a pullback sometime soon but the 60-min chart does not show it yet.




This chart is a longer term view of the last 25 years ans you can see if this time gold does break out from this 20-year down trend line then it could lead to a very extended rally lasting  years with many stocks doubling or more.

http://tinyurl.com/ammfy

Something strange happened yesterday....for many years when the US$ rallied the the price of gold in US$ would fall but yesterday the US$ rallied and broke out of its bull flag and gold also went up. It is too early to tell but if gold could actually decouple from the dollar and trade on its own it would be very bullish -- yet to be seen  ((THIS IS AN EDIT- I had not read the full note the David posted I guess and afterwords see that he mentions this also - but I will leave it in as we have the same opinion of this ))



Note that things look good in gold long term and we will know more after we see how the gold market performs on the first pullback. In the past it has been shown that with gold stocks is is best to not chase them but buy on pullbacks or at break outs.

also watch Palladium as it is perking up - the main plays there are PAL and SWC - the later is at break out now.

Gold is up so far this morning but it is only 06:30 Eastern time.

[bugsfix]

im in at 1.45 

[KCScott]

Just saw this while doing the DD.......

Press Release Source: Schiffrin & Barroway, LLP


CORRECTION: Shareholder Class Action Filed Against DRDGOLD Limited by the Law Firm of Schiffrin & Barroway, LLP
Thursday August 11, 4:55 pm ET


RADNOR, Pa., Aug. 11 /PRNewswire/ -- The following statement was issued today by the law firm of Schiffrin & Barroway, LLP:
Notice is hereby given that a class action lawsuit was filed in the United States District Court for the Southern District of New York on behalf of all securities purchasers of DRDGOLD Ltd. (Nasdaq: DROOY - News; f/k/a Durban Roodepoort Deep, Limited)("DRD" or the "Company") between October 23, 2003 and February 25, 2005, inclusive (the "Class Period").

If you wish to discuss this action or have any questions concerning this notice or your rights or interests with respect to these matters, please contact Schiffrin & Barroway, LLP (Marc A. Topaz, Esq. or Darren J. Check, Esq.) toll free at 1-888-299-7706 or 1-610-667-7706, or via e-mail at [email protected].

The complaint charges DRD, Mark Wellesley-Wood and Ian Louis Murray with violations of the Securities Exchange Act of 1934. More specifically, the Complaint alleges that the Company failed to disclose and misrepresented the following material adverse facts which were known to defendants or recklessly disregarded by them: (1) that the Company's South African operations, specifically the North West Operations, were underperforming due to production problems; (2) that the South African Rand was negatively impacting the Company's operations; (3) that due to (1) and (2), DRD materially overstated its net worth by failing to take timely writedowns; (4) that the Company lacked the cash to adequately cover future commitments and continue as a going concern; (5) that defendants' statements about the Company's growth and progress were lacking in any reasonable basis when made.

On February 18, 2005, DRD announced that Company headline loss per share would be more than 200 percent higher than the previous reporting period. Then, on February 24, 2005, DRD released its interim financial results, which revealed that the Company incurred and continued to incur significant losses and that operations were in process of being restructured. On this news, the shares of DRD fell by $0.38 per share, or 25 percent, on February 24, 2005, to close at $1.11 per share.

Plaintiff seeks to recover damages on behalf of class members and is represented by the law firm of Schiffrin & Barroway, which prosecutes class actions in both state and federal courts throughout the country. Schiffrin & Barroway is a driving force behind corporate governance reform, and has recovered billions of dollars on behalf of institutional and individual investors from the United States and around the world. For more information about Schiffrin & Barroway, or to sign up to participate in this action online, please visit http://www.sbclasslaw.com

If you are a member of the class described above, you may, not later than August 12, 2005 move the Court to serve as lead plaintiff of the class, if you so choose. A lead plaintiff is a representative party that acts on behalf of other class members in directing the litigation. In order to be appointed lead plaintiff, the Court must determine that the class member's claim is typical of the claims of other class members, and that the class member will adequately represent the class. Under certain circumstances, one or more class members may together serve as "lead plaintiff." Your ability to share in any recovery is not, however, affected by the decision whether or not to serve as a lead plaintiff. You may retain Schiffrin & Barroway, or other counsel of your choice, to serve as your counsel in this action.


    CONTACT:  Schiffrin & Barroway, LLP
              Marc A. Topaz, Esq.
              Darren J. Check, Esq.
              280 King of Prussia Road
              Radnor, PA 19087
              1-888-299-7706 (toll free) or 1-610-667-7706
              Or by e-mail at [email protected]

[Terliso]

I'm in at $1.49 go DROOY

[gharknes]

anyone got a sell point  ?

[robt]

I saw the lawsuit as well. It seems that whenever a stock drops precipitously, there will be a lawsuit. Sure, it's important to communicate business difficulties to the shareholders, but it's also a concern that company officers shouldn't say things to send the price down further without good reason.

Their 20-F filing from nov 2004 lists 10 pages (!!!) of risk factors, covering everything from the AIDS epidemic to land claims to aging facilities, they certainly don't seem to be covering anything up.

I'm slightly more concerned about the recent goldminers' strike, coupled with strikes in other industries. Many South African workers are unhappy with what they perceive as a rightward shift in the govt. The government's response has been conciliatory, so things seem to be okay for now, but a long-term hold in South African mining could be subject to unforeseen political events.

But this does seem a low-risk, potentially high reward proposition, I'll certainly have a look at the tape Monday am and probably join in. 

[David Randolph]

Those lawsuits from shareholders don't concern me at all. In fact, they encourage me to buy the stock. Why? Probably it is trading below fair value because of those lawsuits ... and the lawsuits will lose their strength as the stock rises, so, the more it rises, the better for the company (ain't this always true?).

I'm a very happy holder of DROOY and I'm not stopping here. I see about a dozen of promising gold stocks on my filters, so I need to add more gold related stocks to the 3 Stocks on Fire Portfolio.

I don't think anyone will argue with the fact that DROOY's trend has turned from very bearish to very bullish:

[redchipper1]

David,

Thanks for DROOY!....This seems like it should really benefit from a bullish Gold market.
By the way, what do you think of GFI??   It is also a South African stock that also has great fundamentals as well as nice technicals.

[Terliso]

Those lawsuits from shareholders don't concern me at all. In fact, they encourage me to buy the stock. Why? Probably it is trading below fair value because of those lawsuits ... and the lawsuits will lose their strength as the stock rises, so, the more it rises, the better for the company (ain't this always true?).

I'm a very happy holder of DROOY and I'm not stopping here. I see about a dozen of promising gold stocks on my filters, so I need to add more gold related stocks to the 3 Stocks on Fire Portfolio.

I don't think anyone will argue with the fact that DROOY's trend has turned from very bearish to very bullish:

So David, what is your sell target for this South African stock?

[robt]

More gold seems a good idea,I was very sorry to see GG go, as I've been looking for a proper gold play for a while, but my knowledge of this rather complex sector remains minimal.

[willey]

Hi,

I, too, agree with David & have a target of $2.25 on DROOY.  I own GG, DROOY, & continue to own the very best gold stock PERIOD, IMO ==>  That is RGLD & there is none better!

good hunting 'cause gold's goin' to $500 by years end, I believe

Willie

[metro]

Redchipper - on GFI it has done very well and exceeded both short term targets. in an uptrend gold stocks tend to be decent buys near their 9-day EMA. This stock my not get there for a while so may bounce upon filling the first gap near the lower orange dotted line.

It looks now like gold stocks maybe in a multi month rally though at the moment many are short term overbought. Many of the stocks have doubled since May and for those a little consolidation will be good.

There are so many great looking fold/silver stocks now it is important to buy a few to protect from a stock specific problem.




Examples are AUY now pulling back with support at 4.20
CAU broke above 3-month trend line on 3-day rally - may be overbought short term
CGR broke out of 6-month trend line - may be overbought short term
GBN  broke out of 6-month trend line - may be overbought short term
GV retraced to 50-day EMA and started back up on Friday

I keep 6-8 during a bull cycle in gold stocks so if one gets hurt do to some company problem  then it does not damage my portfolio

[Prfsr Hal]

Let's not forget USGL.  I've benefitted from a few very nice runs it's had.  In most recently from 1.50.

Prfsr Hal

[saffeysite1]

I was a little concerned about the action in the stock today.  HOD was 1.66, thenat the close the stock lost all its gains with significant volume.

Not sure if that's a good sign. Anyone else have any input?

Thanks
Saffey.