Dr. Clive Roffey
In view of recent events and the continued bearish prognostications of some Elliott analysts I have put together an analysis of gold, silver and the stocks.
The rand price of gold governs the earnings of the mines. For the past six months the rand price has drifted sideways. The downtrend of the past 18 months remains intact. When this is compared to the JSE Overall index one can see the poor performance of the rand price of gold relative to general equities. BUT there is a major buy divergence on the oscillator at the top of the chart indicating that a serious trend reversal is close at hand. I look for the rand price of gold to start out performing general equities. This implies a move to a stronger rand price of gold and hence South African gold share prices.
The rand price of gold is shown with its oscillators. When both sets of oscillators congregate at the top of the range it is a potential sell signal. Conversely when they group together at the bottom of the chart it is a buy signal.
Note all the relevant signals over the past 15 months. The oscillators have just given a buy signal for the rand price of gold indicating that the chart is ready to reverse out of its negative trend. This will be confirmed when the price moves above R2,700 per oz or R85,000 a kilo. This will signal an end to the sloppy gold movement since the April lows. This is a powerfully bullish signal not only for the rand price of gold but for all South African gold stocks.
There are several versions of the Elliott configuration for the gold price but this is mine.
The vertical up move in 1999 was followed by the total collapse back to the base level to form a double bottom. The 2001 low was far too severe to be the first wave of the new bull market. Thus I believe that It was an A-B base. Although some Elliott analysts state that this format does not exist it was detailed by Elliott as a major base formation. Since then we have had several minor corrections, but nothing major. Thus I believe that we are into a nine wave first leg with the 7-8 correction still to come prior to the final leg up to the top at 9.
Due to the machinations of the rand currency the Elliott configuration on the JSE Gold index is different.
There was also an A-B base double bottom formation but this was followed by a typical five wave thrust wave. Since April last year the index has been inside the first correction of the long term bull market. This is important as according to Elliott the index MUST go well above the April 2002 peak in the next major bull leg up to 3.
A move back above 2500 on the JSE Gold index will signal a major upside thrust that should take the next bull leg of the market through to the end of Feb.
This is an interesting chart.
It shows the average monthly movement of the gold price for each month over the past 33 years.
Jan & Feb are good. Mar to end April not so good, as is June to Aug.
Oct and Nov are the worst months but December is usually the strongest, leading into the January and February follow through.
The implication is that we are in for a hell of a ride during the next two months. All the technical data supports this historic picture of events.
Silver is ready for a real lift off. I have been bullish on this commodity for the past 15 months. It looks fantastic.
I have recently had emails indicating stop loss positions on the gold and silver stocks. My advice is to hold and ride out any minor corrections. In fact dips should be used as top up opportunities. The oscillators are indicating a surge in the price to well above $6. This is only the start of a long term bull market. I do not know where the bearish data that some Elliott analysts are detailing for silver comes from.
Once again I state that I totally discount any Elliott analysis of gold, silver or platinum metals without a commensurate analysis of the shares.
How can you have a bear market if the leading stocks have trebled in value?????
Just to reinforce the point I detail the silver price against the Dow.
You do not have to be a red hot analyst to see the implications of this data.
The silver price relative strength has broken upside. This indicates that silver is outperforming the Dow. Not only that, but the triangular pattern mapped out during the past 18 months is ready to break sharply to the upside.
This is a potentially powerful situation and demands that you ditch equities and focus on the precious metal stocks.
For the past six years the silver price has under performed gold and played second fiddle.
The down trend line looks about to break to the upside indicating that silver is likely to move at a faster pace than gold.
The oscillators are already moving upside. They anticipate the chart events.
This is a potentially powerful signal for silver. As I have so often stated I am looking for silver to be the top performing precious metal in the coming bull run. Get into those silver stocks and stay there!!
Just to reinforce the Rand price of gold analysis I detail the chart of the Kruger Rand. It is ready for a serious upside break.
A move above the R2700 level will trigger the next bull leg to at least R3500.
This implies that the rand price of gold is also close to a major upside move and that the Rand affected stocks are ready to fly.
Focus on the under performing rand affected stocks for a reversal in performance levels.
This is ASA. It represents a bias towards the South African gold stocks.
There is a potential rising wedge. This is the most dangerous pattern in the book as it heralds a precipitous collapse.
But it could also be a fairly infrequently seen rising triangle.
In this case the upside could be just as dynamic. Either way we are sitting at a major crossroads in the gold stock prices.
A move by ASA under $40 will be nasty, but a break above $48 will be extremely bullish. Watch this share price!!
Durban Deep's (DROOY) long term chart is shown on a normal arithmetic scale. It looks fantastic.
There is an absolutely massive triangular pattern that looks like it is ready to break to the upside and produce an astronomic count. Some analysts are already indicating $81 as the potential level. Great though this may be, it is a distorted picture.
The arithmetic scale is misleading when it comes to long term analysis as it does not show percentage moves.
This must be done as per the next chart on the log scale that calculates the share price movement on a percentage basis.
When the same data for DROOY is analysed on a semi log percentage scale a totally different picture emerges. In this case the relevant moves are displayed in percentage proportion.
The downtrend is still intact but the interesting aspect of this data is the reverse head and shoulders pattern that has been mapped out since 1998. The upside count out of this pattern indicates an upside to around the $40 level. Not too bad for a $2,50 stock!!
A move back above $2,85 will signal a major upside thrust for DROOY out of the reverse head and shoulders pattern.
Durban Deep's (DROOY) chart is shown on a weekly close for the past two years. This again on the semi-log percentage scale.
There is a superb triangular pattern that is close to completion. A move above $2,85 will signal the upside breakout from this pattern and the trigger for the move out of the triangle. This is important as it indicates that DROOY should comfortably regain the high ground of $5,5 that it attained in April 2002.
If Elliott wave theory is correct then the price should move well above the April 2002 peak. But lets get through $2,85 first!!
As an aside I show the Dow relative to the NASDAQ.
For the past 15 months the tech orientated index has out performed the heavyweight Dow. But this is ready to change.
The relative strength line is right back at the major support level as is the oscillator.
But the critical aspect of this data is the sell divergence operating on the oscillator. This indicates that the NASDAQ is ready to reverse direction and under perform the Dow.
So if you wish to short US stocks, choose the techs.
Dr. Clive Roffey
12 December 2003
chartist@global.co.za
www.shareaction.co.za
Technical Analysis Course : www.charts.co.za
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Email : chartist@hotmail.com
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.
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