Dr. Clive Roffey
Bullion has burst above the major 15 year $430 resistance level to which I have so often referred. It is a little overheated and needs to consolidate its position for a while above the $435 level to provide a platform for the next upside charge.
The South African resource stocks, including golds and platinums, have all been inside a large three year correction that has been dominated by the strong performance of the Rand. But for the past three months they have been mapping out huge base reversal patterns. The interesting aspect of these formations is that they are all indicating a dynamic upside. There are falling wedges, triangles and broadening patterns. The final leg of these formats can be quite dramatic. But the trend reversal is usually equally dramatic and often leads to a vertical catapult in the share prices.
Many of the large global resource stocks such as Anglo American have formed triangular patterns that also indicate upside catapults. The bottom line is that this data is indicating a serious trend reversal for the ridiculously over valued Rand. Perhaps we will see a reduction of 1% in interest rate from the Governor of the Reserve Bank next week.
Whilst I am discussing interest rates one should keep a very careful watch on the US 30 and 10 year T Bond rates. The chart patterns of these bond rate indicates that the six months period of rate weakness is over and that a new bull trend is likely to lead to rising rates for a long phase. There is an upside count to 6.75% for this data. If this is coupled with a dropping interest rate in SA then the rate differential will inhibit the money pouring into SA and kick the Rand in the pants.
I am looking for a major reversal in the recent inordinate strength of the Rand. There is a potential upside count to R6,75 if any reversal takes the currency above the main resistance at R6,22. A move of this nature will send the gold, platinum and resource stocks into orbit. They are already factoring in such a potential scenario by the shape of their trading patterns.
I love it when I am informed that the chat sites are full of the dangers of buying Durban Deep. This is a sure sign that this slammed stock is close to reversing. There is so much rubbish about DROOY on these chat sites that it is actually laughable. DRD has issued the shares, not for directors, but to purchase assets in Australasia as the cost of open cast mining in that region is almost half of that for deep level in SA. This is a responsible attitude towards lowering the groups overall mining costs. Wait and see!!!
All US gold and silver stocks are back into serious buying zones after the recent minor correction that I anticipated in the last issue.
We have entered the area of the market in which the penny stocks start to dominate and begin their major runs. This is detailed in this weeks "Gold & Silver Penny Stock" newsletter.
The $ gold price is a classic study in RSI analysis. Most analysts only know the aspects of simple divergence in which the RSI fails to mirror the new highs or lows of the share price. But there is far more to RSI analysis than that.
| A | In this area the price of bullion rose and the RSI lows remained level. Note that the RSI reflected every new peak made by the bullion price. |
| X | At this point the RSI fell under the previous lows BUT the bullion price refused to reflect this low. This set up a classic reverse divergence buy signal indicating that there was still further upside to come. |
| B | There was a classic sell divergence indicating a period of weakness in the gold price. |
| C | During the formation of the divergence we again have the bullion price rising and making higher lows that the RSI also followed. |
| Y | The reaction from the divergence had the RSI dipping under the previous lows that the price refused to mirror, indicating still further upside to come. |
| Z | Since then the price has made a further new high. BUT the RSI has also made a new high well above the previous peak of last December. This indicates that a new trend has emerged. All the previous data is now ignored and we start the RSI analysis of classic divergences and watching the lows, all over again. |
The bottom line is that a minor breather may occur but that a major new upside trend has started.
This is the chart of Anglo American on the JSE. I have displayed it with its 200 day moving average in blue. The top frame is the percentage that the share price is above or below the MA. A level of 150 indicates that the share price is 50% above the 200 day MA whilst a level of70 indicates 30% below the MA. This data is very clear. The whole of the South African resource stock market is about to decide which way it will break out of the pattern. An upside break indicates that the price will accelerate away from its MA. This is potentially an extremely powerful chart. Most technical analysts believe that triangles act like coiled springs as they wind down to the apex of the pattern. The ultimate break implies that a new very strong trend will emerge. Symmetrical triangles such as this usually break to the upside.
In addition any break into a new bull trend will be Rand dominated. The implication is that the currency is about to reverse its inordinately strong trend of the past six months. A weakening Rand will send the resource and gold stocks into orbit with a gold price around $450.
It is essential for South African gold stock watchers to keep a very close eye on the Rand price of gold. This is currently churning between 2600 and 2700 Rands per ounce. A break above R2700 would also signal an end to the three year corrective pattern that has been in force.
Whilst the North Americans have benefited from the weak dollar and much stronger gold price, the South Africans have been held firmly in check by the strong Rand. I believe that this picture is right at the end of the move and that the next few weeks will see a resolution to the pictures.
On Dec 6th the Governor of the Reserve Bank details his rate position. Most analysts are expecting a 0.5% cut with some looking for a full 1%. This would weaken the currency.
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Dr. Clive Roffey
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6 December 2004
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