Gold Action
399
It really is time to ditch
equities
Dr Clive
Roffey
Excerpt from No 399
27 June, 2005
So President Mkeki had
the courage to relieve Zuma of his duties as Deputy President.
Good for him. Now that Zuma has also been charge with fraud and
corruption and a new politically lightweight female Deputy President
selected, his position as the second in charge of the ANC appears
to be under pressure. Looks like the political knives are poised
for action. But for now the point has been made forcibly that
corruption and fraud are not to be tolerated, even at the highest
level as we a take a step closer true democracy.
The action of the past couple of weeks has centered on the price
rises in the precious metals arena. Platinum broke upside above
the $880 resistance that has been holding it in check for so
long. Gold shot above $430 and silver is attempting to break
out of its triangular pattern and a move above $7.50 will lead
to a target of $10.50 All these events are most encouraging for
a continuation of a serious bull phase in precious metals. The
most interesting aspect of all this data was the strong move
in the gold price in Euros and Swiss Francs that pushed the charts
well above the major resistance levels that had previously been
restricting further upside movement. These breaks are extremely
strong indicators of a continued powerful bull trend by gold
to out perform all the leading global currencies. Like it or
not gold has surreptitiously reassumed its role as centre pin
of the global monetary system. The other interesting chart is
that of Palladium that appears to have formed a two year base
formation and is brewing for a serious upside charge.
Whilst there has been action in the metals arena the Dow continued
to churn inside its large trading range of the past month, until
Thursday. Previously it could not make up its mind whether to
be bullish or bearish. A real change in the fundamentals was
necessary for the bull market break. A spate of negative data
would lead to a loss of confidence and a downside break. Markets
were in limbo waiting for the next set of news to make up investors
minds. The waiting is over!! Thursday and Friday's 300 point
fall in the Dow wiped out all the churning of the previous 25
days trading. In addition it forced the index under the critical
10450 support level. This is a MAJOR bearish break. It implies
that the bulls have not had the fundamentals to push the price
into a new bull trend and a serious sell off is likely that should
take the Dow, and other global markets, to retest previous lows.
Thursday's fall was a seriously bearish shot across the bows
of all global equity markets.
The oil price edges ever closer to my long term forecast of $75
a barrel. Not too bad a prognostication considering this was
made some 18 months ago when the price was under $30. Although
the oil price immediately impacts upon our every day lives the
price effects of some other soft commodities tends to be ignored.
Sugar is looking like a continued bull market. The price of sugar
in Rands has only just started a major bull trend. This will
have a dramatic effect on the cold drinks industry and is likely
to lead to substantial increase in soft drink prices going forward.
In a similar situation the price of paper pulp in Rand in also
set for a significant increase and this will impact upon office,
nappy and other commonly used paper products. Corn has also broken
into a major new bull trend and staples are likely to cost more
in the near future.
The Rand has consolidated around the R6.70 level and is set for
the next spate of weakness. I am looking for R7.20 to lead the
rand gold price up to my target of R3200. That will set the South
Africans alight. Including DROOY. I am receiving so much rubbish
from US investors on Drooy. All the data about class actions,
watering problems etc have been know for some time and the price
has still doubled over the past two months. This stock is in
a BULL Market, like all the other gold stocks and will perform
like all the other gold stocks over the long term. Forget about
its daily synchronisation!!
click images
to see large charts
 It is essential to put the
past two day's 300 point fall on the Dow into perspective
on the daily data. Not only did it wipe out the previous
25 trading days moves in one session but broke under the short
term support at 10450 as well as the critical 10370 medium term
support. In addition the RSI in the bottom frame has a classic
bear market resistance line at the 65 level. The failure of the
RSI to push above this resistance into the overbought levels
is a dangerous signal that a bear market is in place.
When we transpose this data
to the weekly chart it puts the long term picture into
perspective. I continue to analyse the Dow as a massive
seven year double top pattern that is ready for a substantial
downside break. Although there is support at 9700 I am expecting
this level to be significantly broken during the coming 12 months.
This is an extremely dangerous picture. A substantial top of
this nature does not lead to a gentle slide but to a massive
fall out.
I must also update my Elliott
Wave analysis of the gold price. For the past 18 months the
bullion price has been trading inside a diamond pattern that
has the a, b, c movement of a very weak correction. This implies
that the next forward move will be dynamic. I categorize this
period as the 5-6 wave of a nine wave format. We have just entered
wave 7 that should take the price to well above $500 before the
next short term correction. The final wave nine of this leg of
the long term bull market should move to well above $600. We
are likely to see a period of accelerating precious metal prices
and it would not surprise me to see a gold price well in excess
of $500 before the year end. We have been forced to live through
an 18 month period of market uncertainty. These precious metals
have just made up their minds and are set for a large bull market
run.
The gold price has been
outperforming the Dow since 2001. I have often detailed this
chart. For the past 18 months it moved into a sideways pattern
in which bullion kept pace with the Dow. But this pattern has
ended and I must look for a serious upside surge in the grey
relative strength data. This implies that bullion will strongly
outperform the Dow and all global equity indexes. It really
is time to ditch equities and be in precious metal orientated
investments; irrespective of whether it is the metals, stocks,
warrants or antique silver.
24 June, 2005
Dr. Clive Roffey
Johannesburg
South Africa
email: info@utm.co.za
Roffey archives
"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.
'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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