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Gold Action 405Dr Clive
Roffey
I have often produced my Elliott wave analysis on bullion that to date has been exceedingly accurate. I have been looking for a nine wave move in which we have just completed wave six. Unlike many analysts I was not looking for a fall in bullion back to $360 in a major correction. My next target is above $500 for wave seven followed by a nominal corrective wave eight and the final run up to $610 for wave nine and the end of the first leg of a massive new long term gold bull market that started in 2000. I would look for the $610 target to be achieved by late 2006. So that effectively gives us a nine to twelve month real bull market potential still to come. But one of the other aspects of global analysis that is appearing to be very powerful is the relationship between the Nikkei and the Dow. The former is about to really start out performing the latter. This is a massive global and offshore switch signal out of US and Euro equities into the rising sun markets. The Nipponese are likely to be serious beneficiaries of the Chinese expansion. I have been doing some in depth research on the Chinese markets and their expansion. Although their economic expansion is running at around 9% per annum, as it has for the past few years, the growth of their consumer orientated middle class is exploding at least at double that rate, if not treble. China will very soon be able to consume its production without its current high reliance on export markets. Interesting stuff. Along with an expanding middle class goes increased consumption of gold. Unlike our restrictive South African society in which we are not allowed to own gold unless it is in wrought form, the Chinese can buy gold as both an adornment and investment bars. And don't forget that the potential market is greater than that for the US, Europe and South America as well as Africa combined. With its huge trade surplus in dollars there is at some stage a possibility that the inscrutable economic managers could well convert some into gold. Never forget that throughout history the country that controlled the gold controlled the world. I have often detailed the fact that the gold price is already starting to out perform the leading commercial global currencies as well as the investment orientated Swiss Franc. The last time this occurred was at the start of the huge bull run in 1970. More interesting stuff. My analysis of the JSE Gold index relative to all the other sectors on the JSE is enlightening. The Gold index is ready to out perform every other index in sight. I have also explored several of the leading US and UK sectors and found the same powerful data for the Gold indexes to out gun almost all other stock market sectors. This is a huge bull market signal. Gold shares shot up in 2000 to peak in April 2002. Since then they have been in a three year correction. That has ended and the new bull market commenced. I reiterate, as I have done so many times, that this new bull market MUST take the share prices well above the April 2002 peaks. So my advice is simple. Keep those gold shares, strap yourself in and go for the ride. Who needs analysts in a bull market???!!!  When gold is priced in Swiss Francs it indicates the performance of the yellow metal against the world's leading investment currency. The above chart shows that the last bull market in Swiss franc gold was at the same time as against the US dollar from 1970 to 1980. The same data is to be found against sterling and the Yen. In other words, when gold moves into a bull market it does so against all the leading global currencies. It assumes a pivotal role as the world's major currency for investment. In the top frame the stochastic oscillator is shown along with the RSI in the bottom frame. Both have given huge long term buy signals. In both cases the value has run up to the 70 level. This is not an overbought signal, but precisely the opposite. When these oscillators move towards their 70 levels it is usually the signal for a bull market to accelerate. Note the sell divergence on the RSI in 1980 when it refused to mirror the new highs at the SF 1500 peak and the commensurate $850 peak. There are no divergence sell signals nor is the stochastic anywhere near giving a crossover sell. As this is a yearly chart it implies that there are several years of an accelerating bull market still to come. In turn this implies that this current bull market is in its infancy. Reflect on this data as it once again details that a non interest bearing yellow metal that costs money to hold is about to our perform the world's leading investment currency. The 1970 to 1980 bull market was the result of the closing of the gold window that removed the lid on the gold pressure cooker that had built up pressure since the 1944 Bretton Woods fixed price agreement. The price had to explode. This was further aggravated by the inflationary effects of the dramatic oil price rise. Whereas in 1980 the oil price scenario was the final blow off signal, in this new bull market it has been the initiator and some other event or circumstance will appear to take the price to new highs. This will probably have a relationship to China and their increase in gold bullion reserves. It is interesting to note that while the idiot Brits have sold off their reserves of gold at the price bottom of the market the Chinese have been increasing theirs to such an extent that China now holds more reserves in bullion than the Brits. He who controls the gold controls the world!! . at least in an economic sense.  How many times have I detailed this weekly chart of the gold price in Swiss francs and shown the reverse head and shoulders pattern that indicated a serious upside potential? The acceleration to which I referred on the ultra long term chart has already started and is likely to continue for some time.  If we return to the ultra long term chart there was a 13 year bull market from 1968 to 1980 that market wave III of the ultra long term trend. This was followed by a 21 year bear market in wave IV. Now that we have a confirmed bottom in this bear trend it has to be followed by the final blow off wave V. In my analysis this should last from 8 to 13 years of which 3 have already been in place as bullion has recovered from its $252 low. I favour a 13 year total move of which there are 8 left to go. This final wave V should take the gold price well above its 1980 peak in both Swiss Francs and US dollars. This is the start of a huge fifth wave in a long term bull market. It puts gold and gold stocks into the long term investment category.  I have produced this Elliott Wave data on gold bullion detailing my nine wave move for the first leg of the new bull market on numerous occasions. So far it has been exceedingly accurate. I am looking for the next upside move to around $520 at about Q1 of next year to be followed by a few months correction before the final burst up to the $610 target around the end of next year in 2006. So I must look at gold stocks as a hold for the next year time frame.  This is another extremely important chart that I detailed a few months ago. It shows the copper price relative to the gold price. There is a huge switch signal that indicates a major move for gold to start out performing copper. This is based on the sell divergence on the RSI in the top frame. But I interpret a deeper and broader meaning to this data as a proxy for the performance of precious metals relative to base metals. It is my opinion that there will be a major investment swing out of base metals and into precious metals. In other words concerns about global economic stability will outweigh the demand criteria for resources.  I have also previously detailed this chart of the Brent oil price relative to gold. The current data implies that oil is overpriced in terms of gold bullion. There is a sell divergence on the RSI in the top frame that indicates a serious potential trend reversal in favour of gold as an investment and speculative medium. Right at the top of the 1980 bull market a $52 barrel of oil was the equivalent of $850 an ounce for gold giving a ratio of 0.0612. The median line for this relationship is the horizontal dotted line at 0.65 and all relationships move from over priced back to test the median. This implies that in gold terms oil is ridiculously overpriced. As it is highly unlikely that the oil price will collapse under $55 the assumption must be that the gold price will rise to force the median price back into contention. If oil stabilizes at $55 this would require a gold price of $845 to meet the median. There is a support level on this chart at the 0.09 level. This would require a gold price of $611 to make this relative line fall to the 0.09 level. The bottom line is that gold is about to strongly outperform oil.  When platinum is compared
to gold a powerful upside trend emerges. But there are strong
signals that this bull trend in favour of platinum is about to
reverse in favour of gold. The median line is at 1.5 and a $1000
price for platinum implies that gold should have a commensurate
price of $600. All the above data continues to indicate that
$600 is a target level for the gold price over the next year. '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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