Gold Action

Dr. Clive Roffey
Nov 10, 2006

The main architect of the 1980/90's apartheid policy, P.W. Botha, has passed away. The eulogies have been predictably varied according to which side of the colour spectrum the writer is placed. Most black commentators have described him as an inhuman person and some even likened him to Hitler. Many of the white Afrikaans ex-politicos have praised him as the originator of the talks on the peaceful transference of power. It really does not matter which side of the fence one is on, history will write its own obituary.

However there is one aspect of this discussion that could easily become a contentious issue. Botha may have been the architect of hundreds of deaths during his period as President BUT I wonder how many thousands of un-necessary deaths have been caused by the current Government, and particularly the inept Minister of Health, due to its indefensible and globally condemned AIDS policy? Once again history will draw its own conclusions.

In the meantime the gold price has rocketed through the $628 resistance on the back of the landslide swing to the Democrats in the US mid term elections. This effectively puts US government into limbo for the next two years. The general opinion is that the Democrats are not as business friendly as the Republicans and this could well affect the steamroller ride of the Dow. It is interesting to note in this respect that there is a classic sell signal on Dow Theory as the DJIA has moved to new highs that have not been confirmed by the DJ Transport index.

Frankly I am not too concerned with the Dow. The metals and commodities pictures are of far greater interest. Many of the base metals, Lead, Nickel, Zinc and Tin have rocketed in price whilst Copper and the precious metals have churned sideways. It is now time for the precious metals to regain their long term bull market dominance. Copper needs a break above $7800 to trigger a move above the psychological $10 000 level. Now that bullion has broken above the $630 level it has triggered a count up to $685 as the next phase.

But I believe that the real play will come in the currencies and the Oil price. The Euro / Dollar data is pushing the $1.29 level that is needed for the breakout into major Euro strength and Dollar weakness. A move above $1.29 will trigger a swing up to $1.43 and signal a serious period of weakness for the US currency.

The Rand has recently been very strong against all currencies. But this is unlikely to last as there is a large falling wedge pattern indicating a major reversal back to Rand weakness. If this occurs the South African golds will fly.

But the real chart of interest is the oil price. It has been forming a major base for the past two months at $60 a barrel. A break above $62 a barrel on Brent Crude will signal a new bull trend that should take the price way above the recent highs. I am looking for a move to well above $85 once the price has broken above $62.

We are entering a period of substantial potential market action in which all the laggards of the past year will suddenly spring into action and that includes the precious metals.

The gold bullion price had two distinct trend lines. Both have been broken during the past week. The red support and resistance trendline was the most significant of the two. The minor pullback to test $615 is just a reaction back to test the validity of the breakout. The next move should attack the $628 resistance and a break above this will trigger a shoot to $650 and then $700.

One of the major tenets of Dow Theory is that the DJIA and DJ Transport index should make new highs together to confirm the stability of a bull trend. When this does not happen a potential sell signal is detailed. The current data shows that the DJIA in black has roared through to a new recent high that the Transport index has twice failed to confirm. This indicates a very unstable bull market.

	The New Gold index continues to trade inside the triangular pattern of the past few months. This index needs a break above 4600 to confirm the upside breakout. Watch this index for this break as the next move will be fast and hard.
	Afgold was detailed on numerous occasions as a buy at 250c. It moved above the main downtrend and then churned at the breakout point for a couple of months before finally breaking above the critical 270c resistance. This stock has potential legs.
	The Dollar / Rand data has pulled back to test the main support at the R7,23 level. But it has also mapped out a potential falling wedge pattern that indicates a sharp trend reversal back to Rand weakness in the short term. A break above R7.40 should push the Rand to new lows above R8. A break above R7.40 will be significant and signal another bout of currency weakness.
	Anglogold, as expected, broke off its R300 base and ran into resistance at R325 at which level it has churned for the past couple of weeks. I am looking for the breakout above R325 to trigger a new bull market phase after the nine months of correction that has been the fate of the gold shares.
	The JSE Gold index has formed a huge diamond pattern during the past nine months. It needs a break above the 3000 level to trigger the next upside charge and count to 4100. A break above the 3000 level would be fantastically bullish as it would be the release from all the tension built up inside the current pattern.
	Durban Deep is shown with all its recent grouped oscillator buy and sell signals. The oscillators have currently grouped at their lower buying levels indicating that, once again, Durban Deep has been sold off to ridiculous levels and is a huge buy.
	The long term bull market in the Kruger Rand is interesting. The MACD in the top frame has no signs of any sell divergences. This bull market remains intact and further upside can be anticipated.
	The daily chart of the Kruger Rand shows a strong resistance at R4800 that is ready to break to the upside. Its MACD is also ready for the upside breakout. This implies that the Rand price of Gold is also ready for an upside breakout that will bullishly affect the gold shares.
	Highly leveraged Witsgold is quoted on the pink sheets in the US. It has broken its downtrend. But its red RSI shot right above the top Bollinger band and indicates a short period of consolidation before the next charge. I would rate any price around R55 as a second level buying area for long term investors looking for a little gold leveraged excitement. This is a high priced resources play for those looking for leveraged action. The pink sheets code is WIWTY.PK

Nov 10, 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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