Dr. Clive Roffey
The gunning down (assassination?) of high profile mining magnate Brett Kebble has shaken the mining market. Irrespective of ones attitude to the personality or the methods of doing business it has to be recognized that he, after his father Roger, took the staid traditional mining ideologies and shook them until they rattled. They effectively led the previously blinkered mining approach into the 21st century.
But there is another aspect to this drama. It goes to prove what I have maintained for a long time. That no matter how Johannesburg attempts to window dress its global public relations image it remains a hick Wild West mining town at heart.
In the meantime the gold price has continued its price surge against all the major global currencies. The last time that gold made such a break on the upside against all the leading currencies was in 1970 prior to the huge run from $100 to $850.
I have been researching a huge amount of data for a project on the gold price and one aspect stands out above all others. Gold has underperformed against all the other commodity sectors. It has slid against oil, been corroded by the base metals and the CRB index has left it standing. But the good news is that all these situations are now giving massive switch signals out of the various commodities and into gold and precious metals.
Most of these relative strength charts revolve around a median line and if gold only recovers back to the median it indicates a substantial increase for the gold price. But markets have a habit of always overshooting the mark and swinging into large overbought or oversold positions. Any swing into a gold preference situation would be rather aggressive for the gold price. That's all I am willing to say at the current time. Let's get it through $500 before we start to eulogize on the long term prospects for gold.
The Dow is into its last attempt to break above the 10 750 resistance. The recent bounce off the 10 400 support will be the final chance to break above this critical resistance. Should the Dow fail to penetrate above 10 750 and again fall under the support at 10 400 I would expect to see a substantial downside move that will accelerate in time and value. I would expect to see falls of 100 points per day as the norm. This really is the Dow's Little Big Horn last stand.
In the last issue I alluded to the rapidly exploding middle class in China and its potential effect on the usage and demand for gold jewelry. But of far more importance is the relative position of the Far East trade balances compared to the massive deficit of the US. 'The Economist' this month detailed that China is running an $870 billion surplus whilst Japan has an $830 billion surplus. The combined surpluses of India, South Korea, Singapore and Taiwan add another $700 billion to this total. Compare this to the US deficit of around $1780 billion.
But the real clincher is that China and Japan are the two largest holders of US debt to the extent of around 70% of the bond market. For this investment to remain intact a stable to appreciating dollar is required. But it will not be long before their analysts come to the same conclusions that my data has shown for the past two years, that gold is outperforming ALL the leading currencies.
While the political idiots in the UK have virtually halved the gold reserve holdings of the Bank of England, the gold reserves of China have appreciated from nothing to 600 tonnes over the past decade. China now has higher gold reserves than the UK!!!
He who owns the gold, owns the world. What would be the scenario if the inscrutable Chinese tried a Bunker Hunt and bought large gold futures positions, and then instead of trading them, called for the metal to be delivered?? OOPS!!
I have deliberately displayed this data as a large diagram to emphasize its importance. Last month the Chinese had a $71 billion trade SURPLUS with the US!!
Every great empire was built on production. This promoted the growth of a middle class of earners. Further growth pushed up wages and subsequent wage demands until eventually it became too expensive to produce and the empire reverted to being a consumer rather than a producer. This economic change throughout history has been the lead signal for the decline in influence of that empire.
In addition every great empire was built on slave or cheap labour. India and China are merely following a centuries old trend.
Growing economic power breeds a desire for increased political clout. I believe that within the next decade China WILL be the leading economic powerhouse, if not China then certainly the Far East bloc.
This represents a serious challenge to the US global political position. Uncle Sam has already lost out to China as the world's leading consumer nation and is likely to be shoved into second place in the global economic stakes. But the US has a counter balancing act as it has control of space and the skies. But even this is being tested by the new boys on the block. India has already launched several small communication satellites. How long will it be before the inscrutables wake up to pumping some of their massive surplus into a second space race?
In the meantime watch the figures that are regularly published about the gold holdings of the various central banks. Compare the movement in the Chinese gold holdings to those in Europe. While the Eurobloc is selling …….. China is buying. There must be an old Confucian proverb in their somewhere.
$ Gold price in the bottom frame is shown relative to the Dow. The grey relative strength data has just broken upside oot of its three year range trading into a new bull trend in which the gold price will out perform US and global equities. In addition the RSI in the top frame has also confirmed the upside breakout. This is a weekly chart and implies that the bull run will last for some time.
Against the CRB Commodities Index the $ Gold price has formed a reverse head and shoulders pattern on the grey relative strength data. This indicates that the gold price is ready for some serious upside action against an already rising index.
Relative to the price of Brent Crude Oil the $ gold price has way underperformed. But there is a huge buy divergence on the RSI in the top frame indicating that the gold price is ready to reverse trend and out perform oil. But the main feature is the horizontal dotted line that represents the median. A move back up to the 15 level at an oil price of only $50 would give a gold price of $750!!!. This is a potentially very powerful chart for the gold price.
Relative to the Copper price the grey relative strength is hugely over valued towards Copper and undervalued for Gold. But once again there is a huge buy divergence on the RSI indicating that the gold price is ready for a major trend reversal to outperform copper and the other base metals. A move back up to the central median line would give a gold price well in excess of $600 if the copper price held steady at its current levels.
Whilst we are on the subject of the gold price I wish to reiterate my long held view. I have previously detailed the huge flat top resistance level at around the $420 mark. I have also detailed the falling lows leading to the classic flat top broadening pattern. My previous analysis indicated that the bounce back up to $420 was merely the completion of the whole base format and that we are only just starting the real long term bull trend in bullion. I do not expect a relaxation of the trend in fact there may well be acceleration.
One of the major tenets of a true gold share bull market is that the stocks should out perform bullion due to the leverage over costs. ASA is the US investment trust that holds mainly SA gold stocks. It has a huge reverse head and shoulders pattern indicating a strong upside potential. But there is also a serious RSI buy divergence on the grey relative strength data indicating that ASA is ready to out gun bullion.
For FREE trial data contact :-
Dr. Clive Roffey
info@utm.co.za
www.charts.co.za
www.shareaction.co.za
2 October 2005
Email this Article to a Friend 
Printer Friendly Version
