>
|
|||
Gold ActionDr Clive
Roffey The gold price has again pushed back above the $400 level after retesting its $393 support. This is a critical reversal as it indicates that the churning phase of the past few months has ended and that a new trend has emerged. There is still the long term overhead resistance at $430 to be overcome before the new bull trend can be confirmed. However all my data indicates that this time the $430 level will not provide much selling resistance. I expect the gold price to move through this resistance during the new upside charge to my $485 target. But it is the rand that has every mining analyst talking. The overwhelming opinion is that as the dollar weakens the rand must strengthen, to at least R5.50 to the dollar. However my technical data does not confirm this assumption. I have two potential scenarios. Either the recent move under R6,20 was a clear chart break for a new period of rand strength or alternatively last week's break down to R6.00 is the final stage of a major base pattern that has been building for the past year. Most analysts are plumping for the first scenario. But because of the ancillary oscillators and divergence characteristics I cannot agree. I must continue to indicate that the last three months have been a major base formation. Divergence does not automatically indicate a change of trend direction into the opposite mode. A divergence shows that the probability of the trend continuing on its established path has been reduced and that there is a clear probability that the current trend will change. But it can change in two ways. Sure it can reverse direction but it can also swing into a sideways churning trading range that will work off the oversold nature of the oscillators in the divergence. As the rand stands at this point of time I would favour a move into a sideways churning pattern between R6 and R6.60. It will need a superhuman event to force the rand above the R6.60 level in the face of a weakening dollar. In the meantime gold continues to outperform all the leading currencies from the dollar to the Swiss franc. It is only underperforming against the rand. Most of the South African gold stocks have falling wedges and other dynamic base patterns that have accumulated since the end of April. I continue to rate the past three months as a base building exercise as a precursor to a dynamic upside swing that will more than compensate for the bitten nails. This is NOT a selling area for gold stocks and it is certainly NOT a buying area for general equities. For the past three months I have rated the gold and silver stock prices as one in a lifetime buys. Bullions move above $405 has triggered an upside count to $485. This will set the precious metal stocks alight. I continue to rate current price levels as huge buying areas NOT panic selling levels.
I must again detail my point and figure chart of the Rand. This data shows every intraday move of 2c in the dollar/rand relationship. What I find of interest is the flat top at R6.30 and the falling lows to form a flat top broadening pattern. This would give a count back to R6.60 if my analysis of this pattern is correct. At this point of time I must stick with my analysis that the trading of the past few weeks is a base formation and not the precursor to a new period of significant rand strength down to R5.50.
This is the indicator from my sector rating tables. The red data shows the percentage of bullish and bearish sectors on the JSE. When the tables move above the top red horizontal to indicate that over 75% of the sectors are bullish it is a danger signal to take profits. Conversely a drop to 75% bearish under the green horizontal shows that it is a time to look for buying opportunities. The data is compared to the JSE Top 40 index in black. Since February the red table data has been indicating an overheated market. The recent drop under the 0 line into the bearish half indicates that more and more of the previously positive sectors will turn over into bearish mode. Although this data is calculated for the JSE my analysis of the Dow sectors shows a similar picture of slow market degradation.
There is a large amount of data on the chart of the Rand price of gold. Firstly there is a major buy divergence as the bottom oscillators continue to refuse to confirm the new lows of both the gold price and its red relative strength. The red relative strength line has been forming a flat top broadening pattern whilst the gold price has been drifting. The red pattern indicates that the rand price of gold is ready to outperform the general equity indexes. This in turn indicates that the gold shares, so dependent on the rand gold price, will also out perform the general equity indexes. Further to all this is the continual bumping of the bottom RSI oscillators up against the 50 level as shown by the blue horizontal. Any move on the RSI above this 50 mark will indicate that the downside slide has ended and that a serious trend reversal has taken place.
This is the chart of the $ gold price. I have inserted my Elliott wave counts that I have maintained for some time. Most analysts were looking for a serious correction where I have my 5-6 level. I disagreed. In my work the correction from December last year was the 5-6 leg of an extended nine wave move. We still have wave 7 up to around the $500 level followed by corrective wave 8 that will lead into the ninth and final upward surge that should take bullion well above $600 on this first major Elliott movement. As I have recently stated, gold shares are the buys of the decade at current prices. In addition note that the red line formed a flag pattern that has been broken on the upside. This means that the $ gold price will out perform the general equity market on the JSE. Golds, despite all the negativity, are still in a major long term bull trend.
I have already looked at the short term data on the rand price of gold. This is the long term chart. For the past two years since April 2002 (when the JSE Gold index topped) the rand price of gold has formed a huge A-B base pattern. The final leg of this formation is the falling wedge that I have detailed so often. The implications of this data are for a dynamic move off this base up to a minimum of R3500 per ounce from the current lows of R2400 per ounce. This would yield a price of R110 000 per kilo from the R79 000 at present. At R77 000 several of the gold mines are just at the break even levels so that any move back above R100 000 per kilo would send their share prices into orbit. Note that the red relative strength line against the general equity market has also formed a base.
Metal prices are ready to charge again. Nickel is again leading the way. We had a serious sell signal at the start of the year as all the oscillators grouped together with a divergence sell. Note how the RSI oscillator fell well under the previous lows whilst the nickel price refused to mirror these new lows. This is a classic example of a reverse divergence indicating that there is till more upside to come. Only when the top oscillators again group at the red overbought level will I look for any corrective phase. By that time the nickel price will be at a new high. The same analysis applies to the gold market. Dr. Clive
Roffey "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. _______________ |
