Chart Symmetry

Weekly Gold Price; Randgold; Durban Deep; Gold Price in Yen

June 7, 1999

Chart Symmetry is designed around the observation that prices tend to change direction along certain preferred gradients. New readers are advised to read the first article in this series to discover how Chart Symmetry works. The link to this article is : http://www.gold-eagle.com/south_africa/regional_analysts/joubert020699.html

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.

The key point to remember throughout is that the gradients of all secondary lines were derived from the gradient of the master line. The scope for the analyst to 'do his own thing' and develop a pre-conceived pattern is therefore quite limited. The patterns that are shown in the analyses are inherent in the charts, but these are not the only patterns that can be derived.

Gold Price. Weekly: Friday PM fix. (Last = $265.30)

The chart shows the same bear channel, M-D, used previously. Channel X-Y has a gradient that is the third steeper derivative of the gradient of line M.

Recent breaks above X – which were earlier seen as bullish – did not hold. Instances of failed breaks from major chart patterns are not all that frequent, and are to me evidence of external (not the normal supply-demand) forces at work in the gold market.

After breaking below inverse support at line I (also quite rare) and then back into channel Z-X, the move lower to form a triple bottom along the bottom of the 11-year bear channel, D-M, became the likely development. This move has now been completed with a PM fix on Friday within $0.15 (0.05%) of line D – very accurate seeing that acceptable accuracy on the weekly chart is about half percent

The $64 000 question ( or should it be the $2000 dollar question??) now is whether the support level at D will hold. The first test obviously will be the PM fix this coming Friday (11 June). Note that what happens to gold in between is not really relevant – daily PM fixes and intra-day movement may well be lower than the support at $265.2, but it is only the weekly (Friday) PM fix that counts.

Scenario 1: The price reverses trend at line D a third time to break higher from channel Z-X and begin a new and sustained bull trend.

Scenario 2:. A break below support at line D within the near future (this week, ending 11 June?) extends the bear trend, probably to below $250 and perhaps down to line Y.

Preference: Scenario 1 – but obviously only while support at D holds. A significant break below the 11 year support line should be rated as a low but not vanishingly small probability. A bull trend can be assumed to be in place with a break above channel Z-X and confirmation of the trend with a break back above line I.

Randgold in US currency (ADR). Daily JSE close. (Last = $3.16)

Randgold's ADR price - shown in the top half of the chart - displays two channels.

The break higher from symmetrical megaphone Y-M was a bullish event, but the market then ran out of steam at the top of anther megaphone, X-M. The head and shoulders pattern above line Y was bearish once the break back below Y occurred.

For maximum detail, the volume analysis showed in the previous report is not repeated. The analysis is very similar to the dPdV ® analysis of Durban Deep just below, except that there is as yet no indication of new demand. With the price and turnover MACD's well below the base line, showing a steady decrease in both variables, it is clear that buyers for Randgold – as for most others on the JSE – are still conspicuous by their absence. A sustained improvement in turnover, followed by a reversal in the bear trend of the price, is needed to show that buyers have returned and that prospects for all gold shares have improved. This obviously awaits an improvement in the POG – for which what happens with gold during June is likely to be critical.

Scenario 1: The price continues lower on slack demand to break below key support at line Z, reaching down to the next support level at line B.

Scenario 2: The price rebounds off support at line Z – on increasing demand – and recovers to test resistance at lines Y and A (perhaps at their cross-over?).

Preference: The key to the two Scenarios lies with POG. A reversal this week – even off a slightly lower daily fix – to end Friday well above $265 may well result in development according to Scenario 2. On the other hand, further and sustained weakness in the gold price should see Scenario 1 in place, with a real risk of the price breaking lower below B. On the basis of POG being at good long term support, the preference here is for Scenario 2, namely a reversal – perhaps only off support at line Z – into a new rising trend.

Durban Deep in US currency. Daily close. (Last = $1.78)

The bull market of late 1998 ran into heavy profit taking and the dollar price of Durban Deep subsequently entered a gradual bear trend, contained in bear channel M-B. The bear trend was confirmed when the price broke downwards from triangle M-F, through support at line F, on the fourth occasion of that support line being tested. Line F is a shallower inverse derivative of line M.

The lower chart shows a dPdV® volume analysis for DRD, using JSE turnover figures. Blue bars are the turnover or volume MACD; pink bars are the price MACD. Readers who are unfamiliar with this indicator can refer to the article at this link: http://www.gold-eagle.com/south_africa/regional_analysts/joubert042099.html for information on how the indicator is generated and interpreted.

The sharp increase in demand at A (blue MACD bars rising steeply) started a rally that topped out on substantial profit taking (B). Sporadic instances of buyer interest (B-C) only helped to steady the price, until a rapid increase in demand (on rising POG) caused the price to spike higher (D). Failure in the POG then cut the legs from below Durban Deep and the price failed to react to subsequent instances of rising demand (E).

Heavy turnover on the JSE on the last two days of trading (Thursday and Friday, 3 & 4 June) has resulted in a spike upwards in the turnover MACD right at the end of the chart. If this strong demand is sustained into this week (ending 11 June) on, hopefully, a rising POG, the price should begin a new rally.

Scenario 1: Turnover increases further - early warning! – and the price MACD breaks upward to confirm. The price recovers above resistance at B and rises to test resistance at the top of the bear channel at line M..

Scenario 2: Buyer interest disappears again. The price continues to drift lower on reduced turnover until it reaches support at the bottom of the bear channel at line B.

Preference: With POG now at major long term support, an improvement in the price of gold could be possible.

Market sentiment on the JSE has turned positive on Durban Deep and this could well be an early warning that there is new market interest in this mine.

On the premise that POG should improve during the course of the next week or two, and that the new interest in Durban Deep is not merely a fleeting occurrence, Scenario 1 is selected.

Spot Gold price in Yen. Weekly. (Last = ¥32420)

In the previous Chart Symmetry report we looked at the daily price of gold in Yen. At that time the price had just broken higher from a major wedge formation, which was bullish. However, the price had also broken below a rising support line and the future of the price was thought to be determined by its ability to recover above the support line.

This failed to happen. Instead, the price in Yen broke back into the descending wedge to issue a bear signal and then to fall steeply as POG dropped and the Yen remained quite firm.

In this report we take a longer term view of the price in Yen.

Two features are of interest. The first is the 11-year bear channel, M-C. The second is the broad sideways trend that carried the price from its May 1995 low at line C across the width of the channel to the top boundary at line M, and then more recently steeply lower again – including the sell-off of the past week – to form a 3-year triple bottom along line H. The previously shown daily chart covers the latter part of the downward move in channel M-A.

The question now is whether the triple bottom along line H will hold – which is much the same question asked of the weekly gold price in the analysis above, where a triple bottom developed along the inclined lower boundary of the 11-year bear channel.

Scenario 1: POG in Yen breaks lower below the triple bottom to extend the recent bear trend.

Scenario 2: The Yen price of gold bounces off the triple bottom along H to launch a third major challenge on resistance at the top of its long term bear channel at line M.

Preference: The POG in Yen is clearly influenced by developments in both the US Dollar-Yen rate and in the dollar price of gold.

A stronger Yen would reduce the Yen price of gold. So, if the Yen remains firm or even turns firmer against the dollar, POG has to increase at a faster rate for the triple bottom to hold. On the other hand, a weaker Yen would result in a rebound upwards out of the triple bottom – provided weakness in the Yen exceeds any weakness in the POG.

If the Yen weakens and POG increases, the rebound upwards could be sharp and furious. Similarly, a stronger yen and weaker POG would have the Yen price of gold breaking steeply below the triple bottom.

Readers can ponder the fundamentals that would have a stronger Yen – i.e. a weaker dollar – in combination with a weak POG in dollar terms. Alternatively, what could give rise to a weak Yen, or stronger dollar, in combination with a rising POG? Both of these combinations appear less likely than the combination of a strong dollar and weak POG, alternatively, a weaker dollar and a stronger POG.

Assuming the triple bottom is to hold, a strong dollar – weak Yen – and a weak POG will require the Yen to weaken faster than the dollar price of gold. Similarly, if the triple bottom holds, a stronger Yen and stronger POG will require the price of gold to appreciate faster in dollar terms than the rate at which the Yen gains value against the dollar. If the triple bottom breaks, the number of permutations double.

The consistent correlation between the dollar-yen rate and the POG – as evidenced by the good fit of the 11-year channel – shows that the Yen price of gold is a significant factor. Thus it could be construed that Japanese investors (and the BOJ??) have paid close attention at the price of gold. It would be interesting to know whether they had been purchasers since May 1995 when the POG in Yen ended its initial steep fall and assumed the broad sideways band within which the triple bottom developed??

Since triple bottoms are traditionally very strong chart formations and typically act as warning of a trend reversal, Scenario 2, is preferred. It remains to be seen how the dollar-yen rate will behave during this anticipated rebound.

Previous charts:

US 30-year T-bond: The yield rose further last week, as anticipated in the analysis, to close just a little below the important 6.00% level. Developments this week could be interesting – with a break through 6.0%, likely to reach support at about 6.17%, a good possibility. If this should happen, sellers could well begin to dominate Wall Street.

Dow Jones volume analysis: (Refer "A Glance at Wall Street"). So far, the lows on the price and volume MACD charts are still in place. The turnover MACD is still falling, while the price MACD is beginning to stabilise back to the base line.

A significant increase in turnover will now be bullish, as it would show bullish sentiment as buyers rush back into the market. Similarly, a sustained increase in the Dow, even on relatively low turnover, would also be bullish – and indication that sellers are retreating from the market in expectation of higher prices to come..

A decline in the Dow, still on relatively lower turnover (<800 million shares/day), would confirm the bearish trend.

Previous Chart Symmetry analyses are in the Gold-Eagle archives and are accessible through the Index of Research/Top Analysts on the Gold-Eagle home page.

In the Aztec language the name for gold is teocuitlatl which means "excrement of the gods."

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