Dr. Clive Roffey
The sell off in the South African gold market in the latter part of last week was to a large degree prompted by local analysts forecasting that the gold index still has a further downside leg to come. A fall to a target level of 1100 of the JSE Gold index from the current 1700 level was being widely promoted. There was a huge degree of negativity in the gold sector on Thursday and Friday. This analysis indicates that the bear market in gold shares is still intact and ready for a major sell off phase.
My analysis dictates that I must disagree totally with the concept of 1100 as the JSE Gold index target as well as going completely against the idea that the gold market still has a major down leg to come.
All my data points to the panic selling last week as the final fifth leg down in a broadening pattern that has been brewing for the past two months. My analysis is that we are in the FINAL stage of a base pattern NOT into a new bear trend. There are severe buy divergences on the oscillators and on some relative strength data. I rate this level in the gold shares as a once in a lifetime buying opportunity, certainly not a panic selling region.
I again refer to the long term chart of DROOY as being the key to this market and to retaining some element of sanity. The data on DROOY is extremely bullish in the long term. It has merely reacted back to test the long term support level and I am happy to hold DROOY and to buy more at the $2.50 level as my upside target is $10. I have similar analyses for all the South African gold stocks. Many of the North American golds are also exhibiting this same data.
Far from being bearish on this market at this juncture I rate the gold and silver stock levels as once in a lifetime buying opportunities.
Although the Dow has bounced it does not look particularly convincing. Despite all the hype about bull markets in Presidential election years I am not convinced of the ability of the Dow to remain at current levels for the rest of the year.
The Rand price of gold that is the key to the earnings of the South African gold mines remains locked in a narrow trading range. Despite all the negativity in the gold stocks the actual Rand price of gold has remained relatively stable. It has certainly not fallen to the same degree as the gold stocks.
Especially in the precious metal stocks there is always a sudden panic in the last phase of the downside legs. Last week was a typical example of bottom panic selling.
"Gold Action" is a fortnightly commentary on global gold and precious metal markets produced by Dr. Clive Roffey, Johannesburg, South Africa, a leading professional independent commentator on gold markets since 1969.
It is essential to take a good look at the long term chart of DROOY that I regard as the key to the precious metal markets.
The first aspect of this chart is the long term support at the $5 level that provided a floor for the DROOY share price from 1988 to 1996. At that point the price broke this support level and turned it into a major overhead selling resistance level.
The $5 resistance level has since impeded the progress of the price of DROOY for the past 7 years. During the past two years the share price has made four separate attempts to penetrate above this resistance but failed.
For the past two years the price has gyrated between the overhead resistance at $5 and the major support level at $2.40.
But the key to this chart is the way in which the trading of the past two years has formed what looks to be the right shoulder of a six year reverse head and shoulders base pattern. This is a major reversal formation. It implies that in the long term investment scenario the actual bull market has hardly started.
The upside count out of this pattern is at least $10 and probably a lot higher, but $10 will do for now.
The rest of this analysis is reserved for paid subscribers.
Dr. Clive Roffey
13 June 2004
chartist@global.co.za
www.shareaction.co.za
Technical Analysis Course : www.charts.co.za
Website analysis : www.utm.co.za
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.
Email this Article to a Friend 
Printer Friendly Version
