Gold Action #438

Dr. Clive Roffey
Mar 5, 2007

The Chinese Shenzhen Index had a sudden sell off last week and the panic hit the markets. Suddenly the growth rate of China was about to collapse and resources were about to be devastated. There are two aspects to this fallacious reasoning. First, economies are not speedboats, they are like super tankers. An economy cannot be suddenly turned around in an instant, it takes time to reverse trend. Second, a strong bull market will take all the sudden negatives in its stride and then after a short breather will resume the bull trend. This is what I expect to see happen. I continue to reiterate that we are in a long term resources bull trend and sudden sell offs are absolute windfall areas in which to pick up cheap stock. Another aspect that I have learned from over 35 years analyzing markets is that bear trends rarely start with a 9% fall. Such falls are usually associated with sell offs at the end of corrections and not with the commencement of bear trends. One of the other aspects is that the Chinese markets were in a bear trend from mid 2002 to mid 2006, even with their fantastic growth rate of well above 9%. So what if the growth slows from 10.3% back to 9%. That is still going to lead to huge consumption of raw materials. I reiterate that this is a huge long term bull market in resources and sell offs like this are heaven sent buying opportunities.

Crime in South Africa according to our leading politicians does not exist. So it was with great glee that the press reported that the local crime prevention politico and his wife were attacked at knife point over the weekend. Meanwhile the Presidential and diplomatic enclave in Pretoria is to have a R90 million wall erected to prevent access... but there is no crime in SA.

I am doing this newsletter early this week as I have to present a discussion of the gold price at a large conference at Sun City on Monday and then on Wednesday go into hospital for a knee replacement operation. I am detailing this as Morningside Clinic where my op is about to take place was held up this week by armed men. Believe me, crime is still well, alive and profitable in South Africa. It will take a whole shift in political attitudes to address the crisis, merely throwing more money at the problem is not the answer.

Bullion pulled back to test the original breakout point at $645 during the panic sell off. One of the attributes of a true bull market is its ability to absorb bad news and then shrug off any ill effects, the faster the recovery, the stronger the bull. Most analysts are indicating that bullion will go through the $700 this year. I am looking for an acceleration of the gold price and would not be surprised to see it take out the all time January 1980 peak of $850 this year. The gold price continues to out perform all the leading currencies. It has not yet made a new high against the Dollar, Swiss Franc, Euro and Sterling but has already hit all time highs against the Yen and Rand.

Whilst traders decided to hit bullion the platinum, palladium and silver prices were hardly affected. Base metals were also largely ignored whilst lead and nickel have gone on to new highs. The Rand continues to hover in the area of uncertainty. It has been range bound for the past two months. Stability is a boon to importers and exporters but unfortunately once a range bound pattern breaks its leads to a strong directional move. At this point of time the data favours a weaker currency with a target of R7.75.

The Chinese Shanghai Index is shown above. From mid 2002 to 2006 the index remained in a bear trend. It had an accelerating bull market in 2006 that doubled in value. Certainly the index is into overbought territory but there are no signs of any sell divergences such as that in 2001 which heralded the bear trend to 2006. The RSI has made new highs along with the index and this indicates a stable bull market. I look for further upside in this index once the current panic has abated.

The Chicago Wheat price may seem a little strange as a focused chart in my analysis. But many analysts believe that there is a long term correlation between the wheat price and gold. I like this data. There was a strong resistance at 150 for four years that has been recently penetrated. The price has since pulled back to test the breakout point and I am looking for a real charge upside off this support once the minor correction has run its course. I rate this as an extremely bullish picture.

Bullion has pulled back to test the original breakout level at $645. This has led to the RSI falling under its lower Bollinger Band into oversold territory. A minor drift to test $635 may occur but any reversal should be very sharp and powerful from this area now that the RSI has space in which to move.

The Dollar / Rand data has broken upside out of the flag pattern. This indicates a move to R7.75 for a weaker Rand currency. However my analysis indicates that this is likely to be the last bout of weakness and that a return to strength is likely once the R7.75 target has been achieved.

	Platinum is constantly being detailed as a preferred precious metal investment to gold on the basis of its industrial use. But the facts do not support this. Platinum has under performed gold over the past three years as detailed in the top frame and the falling blue relative strength line. Although the platinum price is increasing this data indicates that gold is gaining at a faster pace.
	Platinum relative to Silver is even worse. Platinum is dramatically under performing the other cousin.
	The Gold vs Silver chart speaks for itself. I have long indicated that silver would be the top performing precious metal and this has certainly been the case.

Mar 4, 2007
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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