Gold On The Move

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 :
https://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 PM fix. (Last = $270.0)

This weekly chart of the gold price should be very familiar to regular readers of Chart Symmetry. It has been used unchanged from early 1999, except for the addition of a trend line or two to the existing pattern.

The steep bear channel, Z-X, has been in place since 1995. The second point on the chart that was used to define line M is the break above $400 in February 1996, the failure of which marked the start of the gold carry.

The two false breaks above line X in March and April this year were, by all indications, attempts to begin a rally in response to stronger demand. However these incipient rallies failed because of interference in the gold market, firstly from the IMF and then the biggie – the announcement by the Bank of England in early May of their intention to sell gold. The reaction to this news was sufficient to send the gold price below its 11-year bear channel at line C, and then even temporarily below the support line of last resort, line D.

It has been mentioned in previous articles on Chart Symmetry that cross-over points of trend lines often are the location either of a sharp break or of a sudden reversal in the price. This detailed view of the above chart shows that the break higher has taken place right at the cross-over of D and X – an indication that the reaction upwards is likely to be steep and sustained, as is already in process.

Scenario 1: POG finds resistance at line C on Friday, 1st October, and consolidates below $300 before a new trend is selected.

Scenario 2: POG breaks above line C ($291) and proceeds to test resistance at line B ($321), consolidating briefly before breaking higher.

Preference: Given the extent of the bear trend and the possibility of a 50% retracement before new consolidation takes place, line B is the more likely candidate for the consolidation to take place. Note that line B is the center line of the bear channel and should be significant resistance. Scenario 2 is therefore selected.

Observe that a break above line B would place POG in the upper half of the channel and open up the way for a rise to reach line M again.

Randgold in US currency (ADR). Weekly JSE close. (Last = $3.65)

A prominent feature of the long term view of Randgold is the steep megaphone, M-F, where line F is the shallower derivative of line M. Megaphones are notorious for very volatile price trends, as has happened here. This applies both to the moves within the formation and the reaction after the break from the formation.

Lines A to D are the direct inverse of master line M, with line I the inverse of F.

By the weekly close last Thursday (Friday 24th September was a holiday in South Africa) Randgold ADRs was right at strong resistance from line B within the bear channel system. After the Euro-banks announced a ceiling on their gold sales over the weekend, the price has broken upwards through this resistance level, with the top of the bear channel at line A ($10.60) as probable (first?) target.

Scenario 1: The price either fails to reach as far as line A or reverses direction at that line or begin a new bear trend within channel D-A.

Scenario 2: The price breaks through resistance at line A to leave the bear channel and so establish a firm bull trend, with inverse symmetry resistance at line I as the next level of significant resistance.

Preference: The key to the two Scenarios lies with POG. If the rising trend in gold continues only as far as the anticipated consolidation level at about $320, resistance at line A should hold, and perhaps trigger profit taking.

A sustained rise in POG through resistance at $321 on the weekly chart should see Randgold rise to the next level of resistance at line I (currently at $16.70, but declining over time). The latter option is preferred.

Durban Deep in US currency. Weekly JSE close. (Last = $1.65)

The weekly chart of the price of the Durban Deep in US currency puts the recent wild swings in perspective. The high value on the chart was achieved in October 1994, when the price peaked at $15.25.

Master line M is the overall resistance line between the highs of February 1990 and October 1994. Line I is the inverse of line M. Line F is a shallower derivative of M with F3 the third steeper derivative. The excellent fit of F3 provides confidence of the analysis. S is the main support line of the whole chart and it shows that the recent bear trend in Durban Deep broke marginally below long term support before the new rally commenced.

Two milestones now lie ahead before the ADR price really can break free. The first and the more important is the long term resistance line, F3, which has a value of $2.99 for the week ending 1st October. A break through this resistance level would confirm a primary bull trend, probably with resistance at line F ($4.30) as the next logical target.

Scenario 1: The price fails to break convincingly through resistance at line F3 and then moves lower under the influence of the descending trend line.

Scenario 2: A break upwards through line F3 soon issues a challenge to resistance at line F.

Preference: The answer to the problem again resides with POG and the resistance level at $321 on its weekly chart. Consolidation at or below that resistance level could keep the price of Durban Deep below its key resistance at about $3.00. On the other hand, a break higher for POG towards $350 is bound to place resistance at line F well within reach.

On the basis of the very good fundamentals now for gold, Scenario 2 is preferred.

Harmony in US currency. Weekly JSE close. (Last = $4.05)

The weekly chart of the ADR price of Harmony displays a very large triangle, A-M, with line A the shallower derivative of M. A-C and P-M are two sets of channels.

These lines show probable resistance lines for Harmony should POG rise far enough for the price to challenge them progressively.

The overall resistance line on the 1994-99 bear market (line not shown) sits at $4.75. A break through this resistance level would confirm that the bull trend is under way, and that would put resistance at line P within reach .

Scenario 1: The price breaks above resistance at $4.75 to extend the bull trend and sooner or later challenge resistance at line P.

Scenario 2: Resistance at $4.75 holds firm at the weekly close and the price continues to move mainly sideways within the current consolidation area.

Preference: Given that the price has already increased to more that $6.00 since last week, with key resistance currently at $4.75, the odds of a severe enough reversal to carry the price back below $4.75 appear slim. For that reason, and of course because POG looks set to remain firm, Scenario 1 is preferred.

Conclusions

It should be kept in mind that these analyses are developed in terms of historical price performance. This of course limits the projections in terms of what has gone before and with reasonable expectations for the immediate performance of gold. While more optimistic resistance targets can be identified, that would serve no purpose over the near term as such targets require a substantial increase in the price of gold before they can be achieved. Some of the charts do indicate possible prices for the stocks if the gold price should take off.

What is clear from the analyses is that there is substantial potential for improvement in the prices of these companies even should they remain within the confines set by their historical performance – simply because they come off such a low base.

Yet, this same fact means that if POG really gets going, price targets for these gold mines will be measured in many multiples of the current price, not merely the more usual percentage increases.