Gold Action #408
A short look at Elliott Wave analysis

Dr. Clive Roffey
21 Nov, 2005

The Gold market has really started to move and I thought it would be beneficial to take a short look at the implications of Elliott Wave analysis.

As you know, Elliott moves in a series of repeating five waves with a corrective wave in between each set of five waves. The end of a fifth wave run becomes the 1-2 correction of the wave of next highest order. Although the five wave format grows, the corrective waves become successively stronger and longer. When the market has reached the fifth wave, of the fifth wave, of the fifth wave, as at A, it spells extreme danger. But when the market has only just entered wave 3 and is into a small wave 3 of larger wave 3 we can expect fireworks on the upside. That is exactly where we are on the JSE Gold index at this point of time. I have constantly detailed that the gold shares MUST go well above the highs made in April 2002 at the top of large wave 1. We are only at the start of large wave 3 that MUST go well above the top of large wave 1.

The JSE Gold index is shown with my Elliott Wave notations.

The big correction from April 2002 to May this year was the large I-II. Since then we have had a smaller 1-2 and minor 1-2. The I-II big correction took the form of a typical flag pattern. The shape of this correction has a direct bearing on the format of the III-IV correction that is likely to hit in 2007. In the meantime we need a strong run through to the first quarter of next year before we hit the next period of reaction prior to the final major upside move.

One of the attributes of the flag pattern is that it is reputed to fly at half mast. This implies that the run up to the top of the flag from the market low will be repeated from the breakout point. The low was 753 and the high 3516 for a 2763 point move. If this is added to the breakout at 1650 it gives 4413 as the potential upside move for the JSE Gold index. However this does not really give a positive break above the top of wave I. The other method is to use the percentage move and not the actual number of points. The move from 753 to 3516 was a factor 4.67x. When this is applied to the 1650 breakout point it gives 7706 as the potential target level. This fits more into my Elliott wave projection.

The bottom line is that we are in for a hell of a gold bull market that is already out performing all the other market sectors, and likely to continue to do so for the bulk of next year.

This is a massive gold bull market.

I have also detailed what I consider to be the commensurate movement of the RSI with the share price potential. It will be interesting to check this out over the next year.

The current bull phase is likely to last until the first quarter of next year. I expect to see a good correction of around 20% in the gold index during the second quarter with a strong resurgence during the latter half of the year.

	The chart of Anglo Platinum is again shown. I have detailed the huge upside potential for this platinum major on numerous occasions. The MACD and RSI oscillators are into serious overbought territory and so it is not a stock to chase. But there are no signs of any dangerous divergence signals. The oscillators continue to make new highs with the share price. This stock remains a hold. Only on a serious pullback will it be time to buy for those who missed the first levels.
	Goldfields chart is shown with the rectangular pattern that I have detailed so often. Now this IS a stock that can be bought. In the last issue I detailed that it was set to outperform the XAU and HUI indexes. A break above the top resistance line at $15.50 will trigger a huge upside potential. Such a break would take this stock to new highs, above the April 2002 top of wave I. Note this situation... AS
	Harmony remains well under the top of April 2002. This implies that it has a hell of a catch up job to do and is likely to outperform GFI in the process. Even though GFI has great bull market credentials I must look at HMY as a probable better performer in the South African gold sector...BUT
	Even though it has bounced over 100% from its bear market low DROOY will out gun the whole of the rest of the South African gold market as it MUST attack the previous April 2002 $5 peak. Before all the nutters start attacking me on Drooy, all I can say is that our single stock futures are realising gargantuan profits on this stock. So stop crying and start buying. This stock will eventually move above $5 to make a new market high.
	Anglogold is likely to be the laggard of the South African gold stocks. It has broken into a new bull phase but its relative strength measured against all the other gold stocks is poor. This is a stock for slow moving fund managers and not for aggressive investment.
	Western Areas is the final South African stock of interest. I have not detailed this stock before because of management personalities. But this has been rectified by the appointment of Gill Marcus, a respected female CEO, that has appeased the local market. This is a hugely under priced stock that has South Deep, the worlds largest gold reserve, about to come into production. Barrick's offer for Placer Dome could easily see bids from other SA mines for Placer's holding in Western Areas. I rate WARSF as a buy.

November 19th 2005
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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