Gold Action #411
Keeping in touch

Dr. Clive Roffey
9 Jan, 2006

I return back to the office on Wednesday next week from the South African summer holiday period, and will resume full services then. In the meantime this is a short interim report to keep in touch. The next Action report of next weekend will be a fully detailed summation of my choices, both sectorial and individual stocks, for 2006.

At the start of 2005 I detailed that I was looking for a major recovery in the gold and resource sectors. This is what happened, to such an extent that Resources and Golds became the two top performing main sectors on the JSE, both well outperforming the popular retails and banking sectors. The 2005 resource charge was led by platinums, but this year I am expecting a different scenario. I am looking for the gold sector to be the dominant resource player.

There are two serious situations for 2006 that must be addressed. First and foremost is the future of the Dow Jones Industrial Average. This has been in a massive sideways trading pattern since 1999. For the past three years it has failed to break above the major overhead selling resistance at 11 500. It is the direction of the Dow's next breakout that will determine global equity direction for the next two to three years. The Dow MUST break above 11 500 during the first six months of this year for the bull market to continue. Alternatively a break at any time under the psychological 10 000 support will signal a very dangerous market, not only for the Dow but for all global equity indexes including the JSE.

I rate the Dow as the most important chart for 2006.

Of almost equal importance is all the data on the gold market. I have been consistently bullish on the $ gold price chart. Where many supposed expert Elliott Wave analysts have been constantly bearish and looking for major corrections, I published my analysis that delineated the move as a nine wave extension over two tears ago and have updated it on numerous occasions since then. My Elliott Wave format remains on course.

One of my most dramatic and controversial pieces of analysis in 2005 was my absolute insistence that the JSE Gold index MUST break above its April 2002 peak to enter wave III of a massive bull market. Anglogold is within spitting distance of achieving this target but the $ price of Goldfields in New York has already smashed above its April 2002 peak to trigger the move.

I again insist that ALL the JSE gold stocks MUST go well above their April 2002 peaks THIS YEAR, and that includes DRD!!!

But apart from the overpowering bullishness of the JSE Gold shares there is another minor sector of interest. PENNY STOCKS, especially the gold and silver variety.

I designated 2005 as the year of resource and gold recovery. I designate 2006 as the year of the gold shares and penny stocks. Ensure that you have a solid exposure to the gold and silver penny stocks (these are detailed in our sister newsletter 'Gold & Silver Penny Stocks'.

There is one other serious aspect of my analysis that requires discussion.

I have always maintained that relative strength is the most important technical tool in the analyst's armory. I have usually compared stock performance against the JSE Overall Index to ascertain the better performing sectors and shares. This year I am altering all that. I will be comparing everything against the JSE Gold index and unless the stock has the ability and data to outgun the gold sector I am not interested. I could not care less if a stock price is appreciating; if it is not outperforming the gold sector I will not be interested.

So on that note let me wish you all a very Resourceful and Golden penny stock 2006.

Have a gr8 New Year.

January 7, 2006
Dr. Clive Roffey
Johannesburg
South Africa
email: info@utm.co.za
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"Gold Action" is a fortnightly commentary on global gold and precious metal markets produced by Dr. Clive Roffey, Johannesburg, South Africa, a leading professional independent commentator on gold markets since 1969.

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