-- Posted Monday, 24 January 2005 | Digg This Article

I am really excited about the gold market and South Africans in particular. The gold price has had its correction and the next break above the $426 level should trigger a charge to the $485 level. But this is not the most interesting aspect of the data.

For the past three months I have been warning that the Rand was ridiculously overvalued against all the leading global currencies. It topped out at R5.56 to the $ in December and is now around R6.10. My data indicates that a break through R6.10 should trigger further weakness to around the R6.60 level. Couple this with a rising dollar gold price and you have a potential Rand price of gold in excess of R3 000 per ounce. This translates to a value of close to R100 000 per kilo. Considering that the break even price of most of the South African mines is R83 000 a kilo, a R15 000 profit would dramatically change the share prices.

Economically there is no reason for the Rand to weaken. The economy is strong and likely to have increased growth in 2005. The strong Rand has pushed the balance of trade into negative territory as imports now far outweighed exports. This is possibly a reason for the Rand to weaken. But ANC politics are being promoted as the main potential drawback for the currency. Recent weekend headlines focused on a reported government attack on the judiciary for being out of touch with the ‘will of the people’. Good socialist rhetoric. Last weekend’s press detailed a Presidential pardon for Boesak who was jailed for embezzlement of money donated to his department for the upliftment of the lesser privileged. This complete cleaning of the slate means that he is now eligible for political office. This action was interpreted by many London analysts and fund managers as a tacit condoning of fraud provided it was done in the name of ‘the struggle against the previous regime’, or as it was described during Boesak’s trial as ‘struggle book-keeping’. The bottom line was a disinvestment of leading South African stocks last week out of London by managers of global portfolios.

How does this negative sentiment fit in with my excitement about South African gold stocks? A weak Rand will provide a much higher Rand price of gold that will be reflected in mine earnings and share prices. In addition I am expecting a serious fall in the Dow now that it has dropped under the support at 10 500. In fact I am looking for a 4 000 point collapse during the next 18 months. This will promote a move to gold and gold stocks in which the South African’s will benefit most.

Durban Deep will be one of the leading beneficiaries of such a move in the Rand price of gold. I receive daily emails decrying DROOY as a totally defunct situation. Wait and see what is in the pipeline for this stock. I do not rate DRJOOY as a $1 stock. Not even a $3 or $5 stock. I rate it as a $10 stock within the next 18 months. If you really want to make money in this gold market, stop bleating about DROOY and buy the hell out of it!!

“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.

 

 

ASA is a barometer of South African gold stocks quoted in $ in New York. Since the last issue I have a serious buy signal. There is a resistance at the $40 level but once above this and all the data indicates a very powerful upside move. The top frame is the distance of the price from its 200 day moving average. This line is about to break to the upside and signal a trend reversal. Do not write off the South Africans!!

This is DROOY compared to the XAU index. At first sight DROOY looks a disaster and this is what all the amateur analysts have been punting. But when one does professional analysis this is one of the most bullish charts in the gold market. There is a falling wedge on the stock price and the oscillator in the bottom frame has refused to confirm the new price lows setting up a major trend reversal and buy signal. The upper frames are the relative strength vs XAU and its oscillator. Once again there is a falling wedge coupled to a buy divergence signal. All of this indicates that DROOY is ready to reverse trend and out perform the gold and silver index.

This is a most important chart when analyzing South African gold shares. The Dollar / Rand data determines the earnings of the gold mines due to its effect on the Rand price of gold. There is a reverse head and shoulders pattern with a short term resistance at R6.11 to the $. In addition there was a classic buy divergence. Any move above the R6.10 level will trigger a run to R6.50. This will have a very bullish action on the Rand gold price and on the South African gold shares. The identical data is evident on all the major currencies. This implies that the Rand is about to under perform all the leading currencies.

The gold price ended at $426 on Friday night. It is ready for its next upside charge. I have several times detailed my Elliott analysis in which the Jan to April correction was the 5-6 in a nine wave move. The current minor reaction is the i – ii in the next upmove to wave 7. I am looking for a move to $485 for the iii – iv correction before a final move to $525 for the end of wave 7. This is a huge bull market in gold and investors should ensure that they are fully exposed.

The Rand price of gold bounced off its lows. There was a clears buy divergence at the low that I detailed. Since then it has churned above the support at R2550 an ounce. A move back above R2600 will signal a run to at least R3000 an ounce. This will be a very bullish signal for the gold stocks.

 

This is probably the most important chart in determining the progress of South African gold stocks. I will report any breakout signals.

The price of platinum has been range bound for the past year. It has formed a flat top triangular pattern that needs a break above $885 to confirm the next upside move. We tend to watch the gold and silver prices and ignore platinum. The others may outperform platinum in the next bull phase but there is serious money to be made in platinum stocks as well as gold and silver.

 

 

 

 

 

-- Posted Monday, 24 January 2005 | Digg This Article

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Gold Action is a fortnightly commentary on global gold markets produced by Dr. Clive Roffey who has been a leading independent commentator on gold markets since 1969.
Dr. Clive Roffey, Gold Action

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