Dr. Clive Roffey
The efficient and calm South African elections are over and the political dust has settled; it is time to review the situation.
To my mind there are two notable results from this election. First the sweeping return to power of the ANC with a record majority. Its 69% of the vote gives it the greater than two thirds of majority required to effectively unilaterally change the constitution. Secondly the fall from grace of the Nationalist party that ruled the country for over 40 years and now faces political oblivion.
But the key to this election result is how offshore investors will now view the total domination by the ANC of all nine provinces. Although there are vocal opposition parties the ANC has an effective carte blanche mandate. Any implications of power plays or radical changes to the constitution will send offshore investors running and the Rand into a spiral of weakness.
Although the ANC can celebrate for achieving their stated unassailable political power base they have to tread very carefully if their real objective is economic growth and benefits. Such power is a two edged sword. It allows the ANC to forge ahead with its political aims with no voting opposition. There may be vociferous vocal disagreement from Patricia De Lille and Tony Leon's minor opposition parties but this will have absolutely no effect on the eventual outcomes, particularly when applied to any proposed constitutional changes by the ANC.
But the ANC has to tread a very narrow economic line between attaining political objectives and appeasing foreign capital upon which the economy depends and in turn upon which the taxes and income for social restructuring depend.
As the old curse advocates, "may you live in interesting times".
The market events of the past week were crazy. The Dollar strengthened against the Euro by 3,8%. There are renewed fears of rising inflation in the US and yet the gold price was knocked by 6,6%. Something is cockeyed here. To make matters even more lopsided the Rand weakened by 6,74% so the Rand price of gold remained virtually unchanged. Yet the JSE Gold index was knocked 11,8%. You make sense out of this because I certainly cannot. It appears that we are back into the realms of stupidity in the gold market.
The gold shares are hugely oversold and back into major portfolio buying areas. The gold bullion price is close to completing a weak correction from the $430 double top. I rate gold and silver as major buys at current levels
The above chart is the Dollar Rand data showing every 5c change in the Rand's movement. After the R6,20 low the price has bounced back to test the overhead resistance at R6,70. This is a critical area. There is now a support level at R6,40. Any move above the R6,70 level will trigger further upside movement on the chart to well above the R7,00 level. Keep a careful eye on this data.
The 1x $5 reversal point and figure chart of the gold price has two major support levels. The first is at $370 in blue and again at $390 in red. The horizontal counts across these two levels indicate a gold price much closer to $500 than $400. I thus regard the recent sudden $25 dip in the gold price as a relatively minor event and not the start of a new bear phase. It is most likely to be the final sell off movement of the correction from the double top at $430. It has merely moved back to test the support at $395.
I also do this chart on a 1x $1 reversal and during the past week there has been significant churning at the $400 level. Any move back above $402 will signal a reversal out of this C wave correction.
Although the events of the past week appear to have been traumatic the two upside counts off the $370 and $395 levels have still to be made. This is merely an intermediate reaction and once finished should lead to a strong upside charge to satisfy the count targets of around $500.
As I have often indicated, my Elliott wave analysis of the $ gold price shows that we are still inside a nine wave upside movement and that the current correction is merely the short C wave sell off that will complete the current correction to the double top at $430. This is a weak correction that heralds a powerful forward movement. Although I have marked the current reaction as the 7-8 wave, I am not convinced that this is the case. The 7-8 may be higher than the current correction. Frankly it does not matter as whichever way the counts go there is still further serious upside to come before this long extended wave has run its full course. This is not a selling area for gold and silver stocks but rather a serious stocking up level for investors that have mot yet entered the market.
The correction on silver was even more dramatic than gold. But this correction has resulted in a classic example of reverse divergence. Note that the red oscillator has dropped under its previous low whilst the silver price is nowhere near its commensurate low. This is a continuation signal that indicates more upside to come. Like gold, the silver data indicates further upside to take out the recent highs. This is also a major buying area for silver stocks for those who missed the first run.
In May last year I detailed the divergence buy signal on the price of Palladium and six months ago I advised precious metal traders to switch out of platinum into palladium. This has paid off. There is no sell signal for palladium and I look for continued strength in this less traded precious metal.
Platinum remains inside its main upward trend. There are minor signs of a potential sell signal. But I would stay with platinum positions until the trend is broken. The oscillator remains intact inside its upside trend.
Dr. Clive Roffey
17 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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