-- Posted Wednesday, 23 May 2007 | Digg This Article
Bullion appears to have found support at the $655 level after being battered nightly in New York for the past two weeks due to large selling out of StreetTRACKS the main gold based Exchange Traded Fund. They ditched over 17 tonnes onto the market during the past couple of weeks. Effectively this huge ETF has a similar depository role to that of a central bank, except that it is subject to the whims of its investors. If they sell the shares then the ETF must dump gold. It appears that several hedge funds ditched their stock forcing the ETF to take sudden action. Whereas central banks are relatively slow to act the ETF’s are attractive to hedge fund managers and they can be extremely fickle in terms of their market action thereby transferring that volatility back to the ETF and hence the gold price. Gold based ETF’s can be beneficial in a rising market but awfully destructive when hedge funds decide to ditch their stock. It would appear that far from being the gold depository for the man in the street the ETF’s have attracted a far more volatile customer in the hedge funds so that the average investor in gold via an ETF is more aligned to the vagaries of hedge fund managers than real movement in the gold price. Food for thought??? This poses the question … are you in an ETF investing in the gold market or hedge funds views of the gold market??
Meanwhile some of the gold shares on the JSE have been battered as a result of this nightly selling in New York with Anglogold and Goldfields being the hardest hit. Relatively speaking Harmony has held up better that the other two but surprise, surprise DRD has been far and away the top gold performer for the past month. Suddenly all the negative aspects of management bonuses, massive issuance of shares, Far Eat mine closures and lousy profits have been discounted in favour of the magic word of the moment … uranium. It has bounced 80% in just two months and looks ready to continue to its target area of 850c.
However the gold shares have pulled back to classic chart breakout levels that usually offer second chance buying areas. After 18 months of churning this gold market is still locked inside its major patterns and the main breakout signal will come when Harmony breaks above the R120 resistance to kick in the main signal for the new bull trend to emerge. I must reiterate that despite all the trauma of the past week and the months of frustrating churning in the gold share prices the market remains in a solid long term bull trend in which the move into big wave III is only in its infancy.
The Dow is progressing to new heights and I expect that there is more to come in the longer term for this global equity leader and my target level of 15 500 remains in place. This bullish projection has started to rub off on some of the JSE shares that have been out of favour for a long time.
The dollar / rand relationship remains the key to most of the market. It has broken out of the falling wedge and needs to move above the main resistance at R7.05 to trigger a bout of currency weakness. Once through R7.05 I expect to see an attack on the R7.30 level. This will be a very critical level. If the rand remains above R7.30 then I expect to see a new significant trend to weakness. But it the currency falls back under R7 then a trend to strength will emerge. For the past three years the rand has effectively been trading sideways and I am expecting a resolution to this three year churning very soon and a new long term trend to emerge. The R7.30 level remains critical.
I am picking an interesting buildup of relative strength data on some of the old favourites of the JSE during the 90’s that have fallen into oblivion relative to the rest of the market performers. Old heavyweight stocks such as SAB Miller, Old Mutual, Remgro and the banks are potential building up steam for a new surge of performance and we will be closely watching these developments. But remain focused on the resource stocks as they too are building up steam.
I have continuously detailed in the recent daily reports the sideways breakout from the falling wedge by the dollar / rand data. This has developed into a resistance level at R7.05 becoming the critical level for currency watchers. A break above R7.05 will lead to an attack on the R7.30 level and a weaker currency.
In the last issue I detailed the oscillator grouping in the buy zone for the dollar and anticipated a trend reversal to rand weakness. This appears to be in place. In addition there is a buy divergence on the weekly data indicating that this trend to weakness will last for some time and not be just a short term burst.
I detailed the oscillator grouping in January on the Brent Oil price and gave the buy signal for a resumption of the bull trend. There is no sign of any sell grouping such as the previous one last May. Thus I must continue to look for new highs on the oil price.
This is the chart of the Nikkei converted to US$ and its performance shown relative to the Dow. It does not take much savvy to be see that the long term negative relative strength trend has turned into positive mode. For long term offshore investors I would continue to look at Japanese stock through the auspices of Japanese mutual funds, of which there are plenty.
In total contrast the FTSE 100 in $ has outperformed the Dow for the past decade, but there are distinct signs that this superior performance is about to end. Could this be that investors are not that keen on anti-gold Gordon Brown, the idiot who sold half of the UK’s gold reserves at the bottom of the market and who continually berates the IMF to sell its gold to effectively bolster African dictators via a supposed aids programme. The UK relative to other global markets is not the place in which to invest for performance.
The $ price of Harmony is compared to the Dow. The massive six year resistance at $17 is clearly evident but the key to this chart is the relative strength data that is brewing up for an upside surge. If I am bullish on the Dow to 15 500 then I must be even more bullish on Harmony to out perform the Dow.
-- Posted Wednesday, 23 May 2007 | Digg This Article
