-- Posted Sunday, 15 April 2007 | Digg This Article
The gold market has broken out of the confines of its 15 month correction. This is a huge step forward as it not only signals the penetration of a frustrating churning period that has driven all gold share holders to distraction but also signals the start of wave 3 in big wave III. The long term implications are enormous. Certainly there will be some huge moves in the gold shares as they more than make up for lost time. But also the gold price is ready for some real action not only in both Dollar and Rand terms but also against all the leading global currencies. This again has huge potential repercussions.
Some time ago in this newsletter, and at all the various seminars at which I am invited to present data, I detailed the chart showing French analyst Thomas Chaises data that there is a 20 year up cycle followed by a ten year down cycle in gold production. We are well into the down cycle and this is repeatedly confirmed by the continuous reports showing falling gold production on a global scale. Demand is outstripping supply and even the most lethargic central bank official will be able to grasp that selling gold at current levels will be a stupid investment decision. On that score Gordon Brown sold out the UK’s gold at the sub $300 lows and it has now emerged that he apparently also stuffed the UK’s pension scheme, and they want him as the next P.M.??????????
But the key to the gold market is the relative performance data. Gold shares have under performed the metal in both dollar and rand terms. But there are strong signs that this period of negativity has ended and that a new bull market has started in which gold shares will out perform the metal price. Ensure that you have a good exposure to gold stocks as they are likely to be the strongest performing sector going forward. In addition I have recently presented data on TV to illustrate that South African gold stocks are likely to out perform their North American counterparts.
Metal prices in general have taken off. Palladium has broken above its $350 resistance and so has Platinum broken above the $1250 resistance. This is only the start of a new bull phase in most metal prices that should see all time new highs by the end of the year. This bullish data also applies to the soft commodities of wheat, sugar and coffee.
Whether fundamental analysts like it or not this market remains resource orientated and dominated. I have maintained this stance since 2004 and have absolutely no reason to change my opinions. Stay with the resource sectors on all global markets as they are likely to continue to outgun the general equities.
Last week I sent out a piece of data on DRD that was forwarded to me. It was an erroneous piece of work that had been put together a long time ago. Unfortunately I did not read it thoroughly and apologize for the inaccuracy of the data. In recompense I have detailed my long term interpretation of the DRD data that should send my foaming at the mouth critics diving to their keyboards to produce the usual paroxysms of scorn and derision.
But what happens to them if I am proved correct in my analysis???!!!
Despite all the frustrations associated with the gold market I have been absolutely consistent in my analysis that dictates the recent 15 month correction was merely a short term minor move in the long term picture. In addition it was a weak correction heralding a strong forward move for the JSE Gold index. I am looking for a powerful gold share market that will now make up for lost time and produce a strong upside surge in share prices as the market continues in its long term trend in wave III. Some of the moves could be breathtaking so ensure that you have a solid exposure to the gold share market in your portfolios.
This is my long term analysis of DROOY.
Since 1986 it has been trading inside a massive flat top triangle. The sell off at the end of last year was, as I have often detailed, the final act in a long term correction. This formed what Elliott referred to as an A-B base pattern that is also known as a double bottom in standard pattern analysis. B wave sell offs such as that of the past six months are usually associated with the final negative aspects of the company. All the rubbish comes out and the stock will never again move into a bull trend. In many cases it is deemed to be on the way to the scrap heap. But a sudden reversal occurs that leads the share into a new bull trend. I believe that has already started by the bounce off the 370c bottom. A move above 500c will confirm this reversal.
But the B wave sell off in the A-B base is not just the final leg of a massive long term correction; it is also the START of a massive new bull market. This will be a long term bull market that is likely to take the ultimate price to ALL TIME NEW HIGHS. Yes, this implies a move above R55. Obviously it will take some doing in the case of DROOY. But the bottom line is that all the negative crap is on the table and the news from here on in is likely to be far more positive. In fact I believe that the NASDAQ requirement of the share price being above $1 by July has already been addressed by a proposed ADR share readjustment. At present one ADR is issued in the US for every DROOY share. This is likely to change to 4 or 5 DROOY shares per ADR. This will push the $ price up by whatever is the multiple without affecting the issued share capital. It is a simple remedy that immediately kills the idea that NASDAQ will ditch DRD from their quotation boards.
From a purely technical viewpoint DROOY has been in a colossal triangular pattern for the past 21 years. Now that this pattern has completed it becomes necessary for the share price to move above the top of the triangle and give an upside target count equal to the longest leg added onto the breakout. I will leave you to do the calculations!!! According to my data DROOY is not just a long term ten bagger but also a potential long term twenty bagger. It remains a serious buy for all types of portfolios.
This is the monthly chart of DROOY with its RSI in the bottom frame. There are classic buy and sell divergence signals prior to the current situation. In addition the RSI has dipped under the lower Bollinger Band at the bottom of the second leg of the current buy divergence. This confirms the end of the B wave sell off and the start of a new long term bull trend.
DROOY is shown against the JSE Overall index in blue. This relative strength data has been in a constant down trend over the past 21 years. But there have been occasions where a buy divergence on the blue relative strength led to a very strong upside price surge. There is another such long term buy divergence at this point of time indicating a trend reversal to strength relative to the general equity market. I am expecting DROOY to not only reverse trend strongly but to also outgun the general market for a long period of time.
This is the daily chart of DROOY in New York. It has broken strongly above the critical 70c resistance during the past two night’s trading. This is a powerful upside breakout on the daily data and not only signals the end of the down move but also the start of a new bull market.
The Elliott Wave chart configuration of the short term correction in DROOY on the JSE had the classic a-b-c format of the Zig-Zag. As usual this formation developed into a flag pattern on the chart. This was broken upside on Thursday and a move above 500c will confirm the upside breakout to a new bull trend from what was a ridiculously oversold area. I am expecting a sharp upside surge to attack the 850c resistance.
The JSE Gold index is shown with its relative strength against the JSE Overall index in blue. The I-II correction is clear as is the 1-2 first move in the next big wave III. The whole point of this data is to show that the 1-2 has finished and that wave 3 has commenced. In addition the format of the 1-2 correction was a weak a-b-c format in which wave c stayed above the low of wave a. This indicates a weak correction heralding a strong forward move. Also note that the blue relative strength has formed a falling wedge pattern that also indicates a powerful trend reversal.
The JSE Gold index vs Rand price of Gold has an almost identical picture. The same falling wedge pattern applies on the relative strength. The conclusion from this data is that gold shares have ended their period of negative performance relative to the Rand price of gold and are likely to strongly outperform it going forward. This is powerful data. Note the flag pattern of the big I-II correction on the JSE Gold index.
The $ JSE Gold index chart had a rectangular format for the big I-II move against the flag pattern on the JSE. IN a similar vein the recent 1-2 took the form of a flat bottom triangle as opposed to the diamond pattern of the JSE. But the key to this data is the relative strength of the JSE relative to the HUI index that is primarily composed of North American stocks. There is a falling wedge on the blue relative strength that again indicates a strong upside reversal of trend. After under performing the North Americans for six years the South Africans are about to outgun their US counterparts.
