In November I produced a report focusing on silver and concluding that this cousin to gold was ready to start moving strongly. I also detailed several silver shares at that time. This is a market in its infancy.

At present there are two types of chart pictures on both the gold and silver shares. I detail these inside.

But the main focus of my analysis relates to the relative performance of the gold shares in the US and Johannesburg. South African gold shares have outperformed their North American counterparts for the past two years. This has been due to the massive increase in earnings resulting from the weak local Rand. Both earnings and dividends have been hugely increased as the Rand price of gold doubled. This powerful influence will no longer determine the price of gold shares.

I maintain that earnings of gold mines will no longer dominate the gold share prices. I look to a large move in the gold price to be the driving force behind the gold share market. Gold stock prices in the US will run in line with the gold price and those in Johannesburg will merely be a translation of the dollar price into Rands. Forget about earnings and watch the gold price.

I cannot leave out the silver stocks as they are also showing signs of major moves in the near future. Several stocks are on the verge of breaking upside above serious long term resistance levels. These breaks will lead to some large moves in both gold and silver stocks.

Stay with gold and silver stocks and forget about the frighteningly disastrous looking global equities.

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@hotmail.co.za

There are two distinct chart patterns on both gold and silver stocks. Those that have broken above the major resistance line and those that have still to break above that resistance.

The chart of Anglogold (AU) below clearly shows the break above the resistance level, and the move well above the May peak.

But the chart of Goldfields (GFI) remains under the resistance level and the May peak.

Silver Standard Resources (SSRI) has just broken above the resistance but not made a new high.

One of the aspects of investing in gold and silver stocks for the past 35 years that I have learned is that they behave as a group. Those that have made new highs are the market leaders and those not moving above the resistance are the laggards. BUT they all end up in the same place eventually. This implies that the laggards have a larger move still to come in order to make new highs. Thus for those entering the gold market I would go for the shares that are lagging and have a little patience. They will certainly catch up. I particularly like DROOY, SIL, NEM and ABX.

As I detailed in earlier issues, this bullion price is only just breaking upside off a massive base pattern and still has an awfully long way to go.

South Africa virtually shuts down for the summer holidays from Dec 16th to Jan 10th so this is a shortened holiday issue.

Dr Clive Roffey
16 January 2003

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