Gold Action #428

Dr. Clive Roffey
Aug 21, 2006

At last a cease fire in the Middle East that appears to be holding. Now we move into the cold war confrontation of who was the victor. As far as I am concerned everyone was a loser. The two warring factions lost young soldiers whilst the public lost lives and the countries lost infrastructure. Where in this devastation is there a winner? Let us all hope that the fragile peace holds. But unfortunately this confrontation has been in existence for 5000 years and regrettably will inevitably flare up again. But I reiterate one of my previous comments that I fail to understand the negative attitude of Hezbollah and Hamas in wanting to wipe a country off the face of the earth. Surely it would be more beneficial to all concerned if the emotional strength driving this anger were directed towards building a better future for their countries.

My Uranium report caused quite a stir and I have receive numerous emails ranting and raving about the glowing future prospects for this metal and indulging in tirades of abuse at my analysis. I could not care less about the so called bullish fundamentals. Technically the uranium 'spot' price is massively overvalued and needs a correction. I am also concerned about the fact that the 'spot' price has been driven to a large extent by hedge fund 'investment'. They are notoriously fickle and any smell of weakness will cause them to dump. I remain totally negative on the uranium market. It needs a healthy corrective shakeout.

The Dow has continued to push upside underneath the critical breakout level of 11 500 but has so far failed to make the vital penetration to trigger a large upside. The support level at 10 600 remains intact but any trend reversal back to test this level will send shivers down my spine.

The oil price has started to weaken in the short term and could easily pullback to test the support at $68 a barrel. But I would view such a reaction as a temporary breather and not a permanent reversal.

So Bernanke is going to beat inflation. At what cost? The gold price has drifted as a result of the believed benign inflation figures, but this area of gold movement is not about inflation but the flight from paper. The dollar remains vulnerable and further distrust of the US currency as an investment medium will trigger more upside moves in all the metal prices.

On Thursday night the US traders trigger the computer generated stop loss levels to plummet the gold price $20 in one hour. This was the final sell off leg of a flat top broadening pattern that had formed on the intraday data over the past week. The flat top is at $634 and the low at $612 for a $22 difference to be added onto the $634 flat top for a target count to $656. I look for an equally sharp upside reversal of the gold price once this formation has run its course.

But the one chart that interests me at this point of time is the Dollar / Rand currency data. It has mapped out a falling wedge and a move back above R6.90 will trigger a further bout of weakness for the Rand.

I have a busy couple of weeks coming up. On Thursday August 24th I am presenting a discussion on gold at the Technical Analyst's Conference and then on Sept 2nd I am holding a one day full course on Essential Technical Analysis for Decision Making. This will focus to a large extent on the understanding and interpretation of oscillators especially the grouping effects that I have use for some 25 years.

But in the meantime we have to contend with a jittery general equity market and a nervous gold sector. I look at the relative strength data for direction and bullion is still outperforming the general equity indexes and looks set to remain in superior performance mode for a long time.

	The Brent Crude Oil price looks to have topped out for the time being. It has formed a rising wedge pattern that has the probability of a pullback to test the $68 a barrel level. There is interim support at $71 that may support the price in short term but I am not bullish for the short term future of the oil price.
	At first sight the triangular pattern on the gold price appears to have been penetrated on the downside. But the intraday data shows a distinct flat top broadening formation with the flat top at $634 and the low at $608 for an UPSIDE target of $660. Any further drift under $608 will merely ADD to the UPSIDE count prospects. This is the final sell off leg of this formation.
	The Dollar / Rand chart has mapped out a falling wedge situation. Friday's break back above R6.90 will trigger a period of further weakness for the Rand. The MACD has just crossed for a buy signal whilst the histogram has been signalling a buy divergence for the past week. I am looking for a much weaker Rand currency going forward.
	I have continuously extolled the virtues of Palladium. It has broken off its base and started a new bull phase. I expect to see the old high of May taken out and a new high going forward. I continue to like this metal in preference to platinum.
	Whilst the US traders play hide and seek with the gold price the platinum data remains solid and extremely bullish. A break above the resistance at $1250 is required for this precious metal to trigger an end to the corrective phase of the past three months and commence a new bull market trend.
	Silver remains hovering between the two trends. It needs a break above the $12.50 resistance to trigger the next upside move. This is again a very bullish precious metal picture. Nickel has rocketed to new highs and most of the base metals are looking for the next upside charge. It is only the players in the gold market that are affecting the short tem prices.
	The Euro / Dollar data has a major resistance level at E1.30. This is the key to the future of these currencies for the next few months. A break above the E1.30 resistance will lead to a significant weakening of the dollar. Many analysts look at the current data and are calling the recent rally the right shoulder of a potential head and shoulders top pattern. A break above E1.30 will negate this possibility.
	BUT when we compare the same data set for the sterling /$ relationship that is no head and shoulders top pattern but rather a falling wedge that indicates a serious upside move for the chart. This implies that the Euro chart will break above the E1.30 level.
	Although the relationship between the Canadian $ and US $ is not of real interest to us in SA it does give some clues regarding the next move on the US currency. The massive downside trend of weakness for the Canadian currency looks set to end and a serious reversal of trend into relative strength appears to be on the cards. I would far prefer to hold Canadian gold stocks to US gold stocks at this point of time.

Aug 21, 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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