Dr. Clive Roffey
So Yasser Arafat has gone. He may have been regarded as the father of the Palestinian cause but unfortunately also achieved the dubious status as the father of modern terrorism as a result of the methods he used to realize his aims.
That may have been the general news event of the week but the investment event of the decade is gold bursting above the 15 year resistance at $430. This is not like any of the common chart breaks that occur on a daily basis, but an absolutely gigantic break.
For the past 15 years the price has been gyrating under the $430 resistance. It has attempted to break through on at least ten occasions, and failed. So the break above the resistance is a momentous event.
It is necessary to put this into perspective. Not only is there a flat 15 year top at $430 but also falling lows that have mapped out the massive flat top broadening pattern to which I have referred on numerous occasions. It may sound a little far fetched, but in technical terms the move above $430 is merely the completion of an old established major base pattern. The break above $430 signals the real beginning of the gold bullion bull market.
There is a strong upside count out of this formation, now that it is complete. The longer term target level is $620.
Whilst the North American gold stocks have gone into orbit the South Africans are lagging due to the effect of a very strong Rand. But the Dollar / Rand chart has also mapped out a short term flat top broadening pattern that indicates a weaker currency going forward, not a further strengthening to R5.50 to the dollar. There is a flat top at R6.22 and any move above this will see a much weaker Rand to at least R6.55. This is probably the most important technical chart at this point of time.
Silver continues its run. The platinum price is stuck between $830 at the lower level and $880 at the upper limit. A move above $880 could see a serious resumption of the platinum bull market.
The Dow has had a Bush win rally. But the chart indicates that it is forming a double top pattern with the previous high at the start of the year. I do not trust this index to appreciate much further before a serious corrective phase kicks in. The oil price has had the short term correction that I anticipated. It is very close to reversing back into the bull trend. Do not become too happy about the recently lowered oil prices they will not last for long.
The huge flat top broadening pattern is again put into perspective by the upside break above the flat top resistance. The whole aspect of this chart is that the gyrations from 1989 to 2001 formed a huge 13 year base. The sharp upward thrust from 2001 to date is merely the completion of the base pattern. The breakout signals the start of the true bull market. In the short term the gold price is a little overheated and a pullback to test the breakout could well happen. Any such pullback would present a second buying opportunity.
There is a small flat top broadening pattern on the Dollar / Rand chart. This indicates a reversal of trend with a weakening of the Rand. Any move back above the flat top at R6.22 will trigger a further weakening back to at least R6.55. This data does not agree with the concept of an eternally strong Rand back to R5.70 and even R5.50.
When we combine the previous two charts we end up with the data for the Rand price of gold. There is no doubt that there has been a powerful downside trend on this data for the past three years since early 2002. But the RSI has been refusing to confirm this position for the past 18 months. In addition there is a short term flag pattern that has formed during the past three months. Flags are bullish patterns that are reputed to indicate the half way stage in the bull trend. This implies that a move above R2700 an ounce will trigger a rise to at least R3200 an ounce. A gold price of this level will cause the shares fly. After this move there is a second count to R3650 but we will deal with that once the price has broken out of the critical flag pattern.
This is the Rand price of gold relative to the JSE Overall index. It is obvious that there has been a negative strength performance since 2003. But there is now a serious buy divergence on the oscillator in the top frame. This implies that the Rand price of gold is about to out perform the general equity market.
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Dr. Clive Roffey
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20 November 2004
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