-- Posted Saturday, 12 April 2003 | Digg This Article
The war on Iraq is over, now we start the war for Iraq. Nations are already bickering about who gets what construction contract and who organizes what aid agency. How the non supportive Euro nations can demand a substantial role in the lucrative re-construction process is beyond me, but that is politics. I far prefer to stick to charts. They do not lie. Sometimes they deceive, but this deception is always in the eye of the beholder.
Gold appears to have found a base around the $320 level. This is unlikely to be penetrated on the downside in the near future. In contrast, any move to push bullion above the $330 resistance could well lead to a serious upside charge. The type of patterns formed by the shares together with the vicious sell off over the past three months usually leads to V type reversals and extremely strong upside reactions. So I would not be surprised to see bullion literally mirror the “we have lift off” phrase. A charge to $400 by the end of Q3 is not an unlikely scenario.
I have several times detailed my Elliott Wave analysis for the gold market and concluded that we have just finished the 1-2 correction. The gold share market should now move into a serious bull market as the third wave of the five wave Elliott structure. The important aspect of this data is that wave three MUST be a lot higher than the last May top of the first leg of the bull run. Thus it does not matter whether you bought gold stocks at their peaks in May or at the current give away half price, the next bull run will take gold share prices well above the May peak prices. And that is only for wave three!! Remember that there is still the upward thrust of wave five still to come well into the future. I am aware that investor panic sets in when prices are falling. But if one realizes that there is huge longer term potential it pays to hold onto gold shares and take a three year sabbatical.
Once again I am going on record as stating that Durban Deep (DROOY) is my main stock out of all the well traded shares. Sure there will be some penny stocks that outperform but I am looking to make at least 300% on this stock from current levels. Randgold (RANGY) has held up well during the selling traumas of the past three months and I expect to see the outrageous revenues continue to roll into the coffers from their Marila mine cash cow.
During the past two weeks the gold price has weakened but the shares have refused to make new lows. This always prompts me to remind readers to follow the gold shares and forget about the bullion price. I was the first analyst to recognize this fact well over 30 years ago and there is no reason to ignore this dictum under current circumstances.
Global markets may have a minor rally in the near future but the poor fundamental data will gradually overpower any bullish sentiment and propagate further downside targets. I remain looking for the Dow to hit 6500 prior to a serious rally.
Gold Action is a fortnightly commentary on global gold and precious metal markets produced by Dr. Clive Roffey who has been a leading independent commentator on gold markets since 1969. Contact email : chartist@mweb.co.za
Let me refresh my gold analysis to put the recent downside into perspective with the JSE Gold index.
The whole move from late 1997, when the JSE Gold index hit a low of 669, to the 750 low in late 2000 was a huge three year base formation. Elliott referred to this as an A-B base pattern. Some Elliott analysts maintain that the A-B base does not occur. I have found numerous examples of the A-B base and am happy to stick to my analysis.
Once the base was complete the JSE Gold index rocketed 500% to 3739 in May last year in the classic five wave format required by Elliott. As usual there was a euphoric state during the fifth and final wave of this move. Many share prices moved to all time new highs. This does NOT occur as an intermediate phase in a bear market!! I totally discount as irrelevant any isolated Elliott analysis on bullion that fails to relate it to the action of the shares. The two work hand in hand.
Since then the JSE Gold index has mapped out a typical a,b,c Zig-Zag type of correction that I have previously analysed in depth as a double Zig-Zag format. The C wave of this correction was particularly nasty. But it has a perfect 61,8% retracement of the previous upward bull market. Both the C wave and the Fibonacci retracement indicate a bottom to this corrective phase.
It is extremely important to note that this correction now forms the 1-2 correction of the next highest order. Elliott Wave analysis states that the next corrective phase in the big bull MUST take the index to well above the previous high at 1. This means that ALL gold shares MUST go well above their May highs before the next serious corrective move occurs. Once the big 3-4 correction is out of the way we still have the fifth and final massive upside wave to come. The recent correction is the first breather. It implies that there is still an enormous upside still to come over the next three years for gold shares.
In addition the recent correction since last May has mapped out a huge flag formation. Flags are typically formed inside Elliott Zig-Zag corrections. The old adage is that flags fly at half mast. This implies that whatever the move into the flag so it will be repeated out of the flag. An upside for the JSE Gold index is indicated to at least 5000 and probably to 9000 in its next upside bull run from the current lows around 2000.
Durban Deep in $ (DROOY) has the identical reverse head and shoulders pattern to AU. But in this case the Elliot B wave remained below the top at 5 to form the normal Zig-Zag patten with the C wave selling off in full force to fall under the low of the A wave. This is classic basic Elliott. The C wave has pulled right back to the main upward trend and is signalling the end of the correction since May.
The upside target on DROOY is to at least $10 for the next bull phase. This represents a potential 400% return from current price levels. Now you see why DROOY is top of my list for the well traded gold stocks. Sure some penny stocks may move more but DROOY represents a liquid easily tradable stock with an outstanding profit potential.
I have long recommended RandGold (RANGY) as one of my top gold stocks. It has not let me down. It has virtually ignored the correction that has afflicted most other gold shares and is again ready for another major surge to a new high. I remain very bullish on this cash cow stock.
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I remain hugely bullish on all gold and silver stocks. I believe that by the end of this year most will have recovered to, if not exceeded, their peaks of last May. Next year (2004) should see a massive bull market in gold shares.
DO NOT panic out of gold stocks but increase holdings at the current hugely oversold prices.
Dr Clive Roffey
chartist@mweb.co.za
www.utm.co.za
www.charts.co.za
