Gold Action
Dr. Clive Roffey
As far as I am concerned the most important chart in the precious metals book is that of the Rand price of gold. It is widely believed that this is the governing factor behind the movement of the South African gold shares. The Rand price of gold determines the earnings of the mines and hence impinges upon the actions of the share prices. Thus South African gold stock watchers tend to myopically view the Rand price of gold as the be all and end all of gold share analysis. In this issue I show that the next phase of the gold market is unlikely to be determined by the earnings of the gold mines in Rand but more likely to be due to powerful demand for gold shares in what is the most illiquid and tightly held internationally traded market.

All my data indicates that the gold stocks are brewing up for an explosive move through until the end of March area. The Rand price of gold is looking like a move to R3 800 per ounce. This translates into R120 000 per kilo for the mines. At that level it will be like printing money for the mines and the share prices will go ballistic. I am extremely bullish on the performance of gold shares for the first part of the year.

Most analysts have an Elliott wave count that dictates the probability of a fall back to $370 on the gold price. My analysis is totally different as I outline in this issue. I am looking for an explosive forward move in the $ bullion price through to at least $460 in the near term.

In my work we are into an accelerating gold market, not a correcting one. So stay with those electric gold stocks, especially DROOY. I have often detailed the upside potential of this marginal mine. It is one of the top ten producing mines. It was with great interest that I noted Merrill Lynch rating it as a buy. What took them so long?? I continue to rate this as my favourite gold stock for the next up leg of the market. I do not see the value in buying some speculative developer when I can buy one of the top ten producers and obtain the same leverage. I reiterate my comment from the last issue. Many of these gold stocks will pay dividends equal to today's share price before the end of this long term bull run. So I reckon that I am getting the stock for free!! Goldfields is in the same category.

The platinum stocks are moving. I have already analysed that Palladium will outperform Platinum and recommended arbitrage switching between the two metals. The South African platinum stocks are probably the only shares in the world that will benefit from a price surge in Palladium.

Silver continues to excite. My short term target of $6 was achieved and the metal corrected. I am looking for the next phase in silver up to the $9 level as a major move. At $9 I am probably looking for profits.

Most analysts are looking for a C wave pullback to at least $390 and are waiting for this drift before buying into the market. I believe they are about to completely miss the boat as this gold market continues to accelerate.

ANALYSIS

This is the popular Elliot Wave count for bullion that is being proposed by many leading TV and press analysts. I believe this to be totally wrong for one simple reason. One cannot have the pull back at 2 wipe out the whole of the first wave move as is being proposed for the fall in 2000. The first serious correction can be deep but must not wipe out virtually the whole of the upward surge to 1. In addition it is not usual to find a vertical upward thrust in wave 1. As the start of a new bull market, wave one takes time to get going.

I am looking for a continuation of the acceleration to complete a nine wave first leg of the long term bull market in gold. Wave nine should take the price well above $500.

ANALYSIS

In my analysis the pull back in 2000 was the B leg of an 18 month A-B base pattern, NOT the start of the bull market. The first real leg of the new bull market started in 2001. Since then we have seen an accelerating bull chart. I believe that this move will be a classic nine wave leg in which we have the up move to 7 followed by a minor correction to 8 prior to the final upside charge in wave 9. I am not looking for any serious correction in the gold price until wave nine has been achieved.


Dr. Clive Roffey

24 January 2004

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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.