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Chart Symmetry

Weekly Gold Report: Randgold; De Beers; Dow in Gold

March 8, 1999

Chart Symmetry is designed around the observation that prices tend to change direction along certain preferred gradients. Different preferred gradients are linked though the Fibonacci ratio. When a preferred gradient has been identified and confirmed, it and its derived gradients can be used to search for patterns that help to describe the shape of the chart, which then enable the analyst to anticipate certain developments.

The prices shown for the lines are the values of the lines at the next time interval after the chart close. It is not a prediction that the price will suddenly move to reach that line overnight, but provides the reader a measure of the move that could take place if the price pattern does develop in the direction of that trend line. The steeper the line, the greater will be the change in the line value over time.

Gold Weekly: Friday PM fix. ($287.90)

This is a more detailed chart of the weekly analysis shown here some weeks ago. Only the latter part of the 11-year bear channel, M-D, appears on the chart. The main feature is the steep bear channel, Z-X, which, as before, was generated from the gradient of line M. It can be seen that the POG has already broken up out of channel Z-X, but then failed to move away from X. A minor break on February 5 was followed by a return to X two weeks later and could be the usual goodbye kiss after breaking a major trend line. POG has now moved just a little bit away from line X, perhaps to follow the rising trend line I. Once away from the influence of the bear channel the price should begin a substantial rising trend, with line I as the main support line over the near term.

Scenario 1: The break from channel Z-X is the beginning of a sustained and steep rising trend that breaks above resistance at line C and the $300 level to test resistance at line B.

Scenario 2: Gold fails to hold the support along line I and breaks lower to move downward along line X for a third test of support at line D.

Preference: Scenario 1. This simply has to be so, given the long battle – since October 2nd – to manage a break through resistance at line X! Line I is the key support now and $287.1 its value for this Friday.

Randgold calculated ADR – JSE close ($2.36)

Two weeks ago the weekly chart of Randgold showed the price trapped between steeply descending resistance at $2.09 and level support at $1.29. Last Friday's calculated ADR price from the JSE close was $2.36 – breaking above the weekly resistance, even at the price it had 2 weeks ago. This is bullish, even though the break as yet hardly shows on the weekly chart because of the very large scale.

A more limited daily chart of the calculated ADR shows a bear channel A-C and a rising channel, X-Y, which has the same gradient as A-C. F is the shallower derivative of M, with B-F a descending wedge of which only 3 legs were completed before the break higher. Pattern X-F is developing as a megaphone.

Scenario 1: The price failed to break above resistance at line X on the first try and had to return for a goodbye kiss on line B before a new challenge on X could be made. The first new attempt, on Wednesday at $2.50, failed, but there is a cross-over just ahead and this weak point in the resistance is now used for a break higher to extend the bull market.

Scenario 2: The price has twice failed to break above line X and now settles into the bear channel B-C again to return to line B sooner or later.

Preference: If gold remains bullish, a break higher through line X is expected – quite possibly at the cross-over point of lines X and B either on Monday or Tuesday. If the break has not happened on by Wednesday, it could be postponed for a while.

De Beers in US dollar. Daily JSE close. ($17.40)

De Beers in dollar terms shows a well-defined and equally spaced bear channel, A-B-C-M, with two wedge formations, M-F3 and M-F1. Lines F1 and F3 are the first and third steeper derivatives of M. (The gradient of F1 is the gradient of line M divided by the Fibonacci ratio (0.618); the gradient of F2 is the gradient of F1 with sign reversed and again divided by 0.618. F3 is the gradient of line F2 divided by 0.618 and the sign again reversed.) Which means the gradients of F1, F2 and F3 are all fully determined by the gradient of line M. The good fit of the derived lines – as in the other charts – supports the concept of preferred gradients.

Note that the first wedge, M-F3, broke higher on leg 3 of the formation – premature and thus quite bullish. The larger wedge M-F1, which then developed, broke upwards on leg 5, which ends the normal development of a narrowing formation. Line F2 is the support line of the new and quite steep rising trend.

Scenario 1: The yield reverses direction at resistance at line B, breaks below support along F2 and turns bearish for a move down to F1.

Scenario 2: The yield holds support at line F2 to break above resistance at line B and extend the bull trend to the top of the channel at line A.

Preference: Selection of the scenario should take place when resistance at B is reached. Transformation of a wedge into a channel – from wedge M-F1 to channel A-M – is a process that occurs quite often and is seen as the more likely development here. The real test of what the longer term trend should be ought to occur when the price reaches line A.

Dow Jones Industrial Index in ounces of gold. (33.82 oz)

Two weeks ago when this chart was first discussed here, it was thought that the Dow in ounces of gold (calculated by dividing the Dow Index by the POG) was already on leg 4 of the large rising wedge F2-F1. On Monday 6 January the chart was just 0.5% short of line F2 – ending the rising move right at line M before moving lower again. Accuracy on daily charts is usually taken as 0.25%, but because this chart is not a simple price but calculated from two variables, 0.5% was considered close enough.

On Friday the Dow rallied by 268 points to close at a new all time high. The chart of the Dow in gold also reached a new high, at a value of 33.82 – just 0.15% short of F2! With this move leg 3 of the wedge has finally been completed, for all practical purposes, and leg 4 can be said to begin with any reversal at F2.

As before, line M is a major watershed line, passing through the chart and acting as support and resistance. Line F1 is the shallower derivative of M (gradient of M divided by 0.618) while F2, in turn, is the shallower derivative of F1 (gradient of F1 divided by 0.618). Channel lines A to D are second steeper derivatives of M. The spacing of these four lines each time increases by the Fibonacci ratio.

Scenario 1: The Dow-in-gold breaks higher, in a premature break upwards from wedge F2-F1, to extend the rising trend. This development could arise from a stronger Dow, a weaker gold price, or a combination of the two.

Scenario 2: The Dow-in-gold reverses trend at F2 to set off on leg 4 of the wedge, beginning a bear trend that should reach all the way to support at line F1. This, of course, could result from a weaker Dow, a stronger gold price, or a combination of the two.

Preference: Well defined narrowing formations, wedges and triangles, develop normally – i.e. to complete leg 5 before breaking from the wedge – in about 70-75% of cases. Probabilities therefore favour Scenario 2. So, too, does the expectations of a higher gold price now that there is a tentative break from the bear channel on the weekly chart.

Conversely, this analysis of the Dow-in-gold, which favours a reversal in the trend, offers support for the presence of a break from the bear channel on the gold chart and a stronger gold price.

The Incas thought gold represented the glory of their sun god and referred to the precious metal as “Tears of the Sun.”
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