Dr. Clive Roffey
Norilsk Nickel, Russia's largest mining company and the world's largest producer of nickel and palladium, as well as being a major producer of platinum, copper and cobalt announced it will pay Anglo American $1,16 billion for Anglo's 20% interest in Gold Fields. Most commentators are speculating about the viability of Norilsk and the financing of the $1,16 billion. But rumours in Johannesburg have suggested that the Anglo American sale of its 20% stake Goldfields was the result of them being cash strapped in South Africa. Despite all the suppositions and debate the share price of Goldfields has been positive of late. I have constantly referred to Goldfields as one of my favourite gold stocks and I remain convinced that it will be one of the best gold stocks during the coming bull run.
In the last issue I detailed the point and figure chart of bullion and showed the potential upside counts to at least $495. Since then the price has moved back to attack the $430 level and looks like continuing its steady bull move to reach $460 in the short term. Platinum is back above $900 after a short breather and I expect to see the underperforming platinum stocks start to pick up steam after their corrective phase. Despite the rise in the silver price the shares failed to follow suite during the past couple of months. They have taken a well earned rest after some dynamic performances for the past two years. But all my data indicates that the breathing period is over and that the next supercharged bull thrust is ready to commence.
All in all the prospects for the commencement of the next major bull run in precious metal stocks look very good.
The South African elections take place on April 14th and it remains to be seen whether the ANC can obtain their much cherished, but so far unachieved, control of the Western Cape and the Zulu stronghold of Kwa-Zulu Natal can be obtained. I hope not as we need to have a strong united opposition to maintain the system of checks and balances.
My data indicates that the Rand is set to weaken substantially. That will have a hugely positive effect on the prices of South African gold stocks. I have continuously detailed during the past couple of months that the data is starting to turn in favour of the South Africans over the North Americans. I believe it is essential to have a serious exposure to the South African gold stocks in the coming bull run as they should be the star performers.
I have detailed the massive bases on the shares and cannot understand how anyone can be bearish on bullion when the massive bases on the stocks indicate such huge upside potential.
Stay with those gold and resource shares.
This is the chart of silver relative to the DJIA. For years the silver price underperformed the Dow. Just look at that absolutely huge base from 1991 to 2002. The lift off in this metal has only just started. This is merely the first stage of a seriously long term bull market. In the short term the oscillators are well into overbought territory. But a few weeks of sideways churning will ease that position. The relative strength against the Dow has also only just started to lift off in its superior performance stage. Silver will continue to out perform US equities for some considerable period of time.
The chart of the silver to gold ratio moved in favour of silver last year and remains positive. However the oscillators are into overbought territory and for a couple of months the lagging gold price may well play catch up. I would switch my part of my silver exposure into gold for the next three months. But this is a long term performance picture for silver. Some time ago when silver was trading at $5 I detailed that I was looking for $9. At that stage $9 seemed like an impossible target. But bases of this size have a habit of producing inordinately strong thrust moves. My long term target for silver is closer to $15 than $p. But that is still some time off. So lets focus on the present.
Platinum was the precious metal market leader but silver has assumed that role since the start of this year. In January the relative performance chart of silver against platinum broke upside in favour of silver. The six year bear relative bear market is over and as I have so often detailed, silver is the leading precious metal, and likely to remain in that position for quite some time.
Silver has outperformed Palladium for the past three years and looks set to continue this superior performance for the next few months. But the relative strength line will soon run into some serious resistance. I prefer silver for the next few months but will be looking for switch signals.
Dr. Clive Roffey
2 April 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.
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