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Gold Action #436Dr. Clive Roffey So the top politicians want to know what the fuss is about crime being out of control. Within a week after their blinkered statements two high profile figures were gunned down. When are they going to drop this shabby pretence of burying their heads in the sand and realize that if serious crime is not addressed they will lose the 2010 soccer world cup? No overseas country will advise its citizens to travel to a venue in which people are gunned down at will. Mbeki has made it his mission to integrate Africa. This backfired at Davos where South Africa was virtually put on the economic back burner in view of its politicians preferential associations with the rest of Africa instead of focusing on the extensive attributes of South Africa. Clearly South Africa is viewed in a totally different light to the rest of Africa and our politicos would do well to take advantage of this in future economic discussions. There is a balancing act between politics and economics that politicians must negotiate. Too much politics and the economics fall by the wayside. Mbeki has attempted to build his image on the African Renaissance that now looks decidedly dodgy. To an extent he has ignored the status of his own country's economics on the global stage and left this to a large degree to the business community. It is time for a concentrated effort to market South Africa's industry and to put African politics on the back burner. I was interested in a report that the middle class in South Africa is growing at a rate of 15% per annum. This is confirmed by the fact that vehicle sales last year increased by 15% and are expected to grow by an equivalent number this year. Last year we had over 700 000 new vehicles on the road and more than 800 000 are expected this year. Quite how the roads and motorways are going to cope is another matter. But this expansion of the black middle class is an essential buffer against the more radical political elements. A middle class has something to lose and they will not easily allow a denigration of their new found status or reduction of purchasing power to be eroded by some hot headed ultra left socialist politician. Eskom, the electricity generating body, has admitted that it is underpowered and electricity cuts affected the whole country last week. Now we are having daily problems with Telkom about ADSL connectivity to the internet and emailing. This is not the atmosphere in which to run decent businesses on the world stage. With the middle class explosion likely to continue for at least the next five years there needs to be a drastic service review and investment in all aspects of our infrastructure to accommodate this. Four years ago I detailed that I was looking for an explosion on the business front in South Africa. Now that the gold price has broken above $650 I expect this growth to move into top gear for at least another five years. The commodity cycle is far from being over. Sure we had a six to nine months correction, but it was only a correction in an ongoing long term bull market. Once bullion really starts to move and all the other precious and base metals go with it the money will pour into this country. I expect to see the Rand strengthen considerably over the next few years but inflation may well become a problem as the continued middle class spending sends more money after fewer goods. South Africa has a bright future but really does need some strong western planning and investment to accommodate the growth. Friday night saw a sell off in metal prices which, according to the Wall St Journal, was due to the imminent failure of Hedge Fund 'Red Kite' that had a loss of 20% in early January and is trying to stall investors who want to pull out their money. But falls such as this offer buying opportunities and not selling options. According to current fundamental thinking the whole gold market has a negative overtone to it. Anglogold is a no, no because Anglos are sellers and their stock is overhanging the market. Goldfields is no good because it has issued several million shares to remove a hedge book. DRD is the pariah of the gold sector, its management is no good, it has lost interests in Fiji and is about to disappear down its own mine shafts and Harmony has just produced poor results and will never make money as its mining costs are too high. Technically the signals are the very opposite. All the shares have been in a one year correction, or to be more accurate a 55 (Fibonacci number) week correction and Fibonacci numbers are playing a strong role inside the corrective phase.
The chart of Goldfields will be of interest to Fibonacci aficionados. The A wave from the start of the correction last January lasted 89 days and the rally in the B wave to the Irregular top took only 13 days. Since then the protracted C wave has lasted 144 days. As I have pointed out several times the pattern of the C wave sell off is that of a falling wedge which implies a sudden and very sharp catapult reversal. In addition I have also frequently detailed that the C wave has remained above the low of the A wave indicating a weak type of correction and heralding a strong forward move. In addition there is a Fibonacci relationship with the length of the triangular pattern on Anglogold to which I have often referred. Surprise, surprise!! Even the chart of DRD has a Fibonacci value attached to its massive A-B-C correction. It would appear that the market has moved in a typical Fibonacci relationship for the correction in the gold shares over the past year.  Anglogold and its Fibonacci count for the triangle is shown above and the 54 week massive A_B_C correction on DRD illustrated below. The break above R335 on the Anglogold chart is significant and a move above R350 will confirm the new upside count.   DRD has mapped a falling wedge pattern and in addition there is a huge buy divergence on the RSI. This is a major buy signal after the period of strong under performance.  DRD is shown with its relative strength against the DJIA in blue. There is also a major buy divergence on this data as the RSI in the top frame has failed to confirm the new lows. Feb 4, 2007 'Gold & Silver Penny Stocks' is the sister publication to 'Gold Action' and is produced by Dr. Clive Roffey; croffey@mweb.co.za
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