Rand

February 25, 2004

Dollar / Rand

  • The Dollar peaked against the Rand in December 2001 at R13,75 to the dollar.
  • For the past two years the Rand has strengthened to touch R6,06 to the dollar in December last year.
  • Since then the Rand has weakened to touch R7,55 and recently corrected back to R6,48.
  • This latest minor show of strength has ended in my analysis.
  • I am looking for a reversal of the Rand into a period of substantial weakness that will take it well above the resistance level at R7,50.
  • This is important for resource and gold stock watchers as it will assist in pushing stock prices to higher levels.

Euro / Rand

  • The Rand has knocked up against the R9,50 level to the Euro on three previous occasions during the past 13 months.
  • These gyrations have mapped out a potential reverse head and shoulders pattern that indicates the next upside surge on the chart will break through this resistance level.
  • The more recent daily data on the Euro / Rand chart shows a second short term support / resistance level at around the R8,50 to the Euro.
  • I am expecting a bounce off this level to push the chart to well above the recent R9,20 level.
  • I rate the Rand to become a much weaker currency against the Euro and Dollar.

Sterling / Rand

  • This is probably the most critical of all the Rand charts.
  • Against Sterling the Rand has formed a reverse head and shoulders pattern with the selling resistance neckline at R13 to the UK pound.
  • But there is a serious buy divergence for sterling that was formed during the April to December period last year.
  • The implications of the pattern and divergence signal are that the Rand should weaken back to the R15,5 level to sterling.

CONCLUSIONS

  • From the above chart data we have a serious potential weakening of the Rand against the three leading global currencies.
  • For the past two years the Rand was the world's strongest currency but this is about to change into one of the weakest.
  • This will put a fire under the South African gold shares as the Rand price of gold should increase dramatically.
  • I am already on record as looking for R125 000 per kilo. Compared to the current R89 000 per kilo this would lead to a dramatic re rating of the South African gold stocks on the global stage.
  • Why should the Rand weaken in the face of probable dollar weakness?
  • It is automatically assumed that the Rand will move in the opposite direction to the $. This is just not true, the Rand is not on auto-pilot.
  • I ask you what would happen if some over zealous more radical politician makes some Mugabe like utterance about property rights and / or business shareholdings in the hustings lead up to the April election?
  • What will international investors do if the ANC gains control of both the ZwaZulu Natal and Western Cape provinces in the coming election to give it an effective one party total control over the country?
  • What will the international investors do if the ANC gains the required 67% majority of the country's vote necessary to change the constitution, and confirm its status as the one party state ruler?
  • Should any or all of the above scenarios occur as a result of the coming April election then I look for major Rand weakness as investors dump the currency.
  • Even worse, if investors perceive prior to the election that a probable one party control is likely then they will be sellers long before the election.

I must conclude that far from being auto-robotically tied to the US $ the Rand is about to exhibit a complete break against the three major global currencies and move into a period of substantial weakness that could well take the Rand back to R16 to UK sterling or R8,50 to the $.

Combine such a weak Rand scenario with the higher global metal and commodity prices and we have the recipe for a dramatic catapult in resource stock prices.

  • The above chart of ASA vs XAU index effectively compares the South African gold shares to the North American gold stocks.
  • For the past year the South Africans under performed the North Americans as detailed by the falling line.
  • But for the past three months there has been a positive revival in the South Africans.
  • I look for this chart to continue the upwards progress and for the South African gold shares to be the best performers in the precious metal stocks.
  • This will be due to the weaker Rand forcing the Rand price of gold upwards and thus significantly increasing the gold mine earnings, particularly of the non hedged South African gold miners.
  • I look to both Durban Deep (DROOY) and Goldfields (GFI) to lead the relative strength charge.
Gold's special properties mean that it has a greater variety of uses than almost any metal.

Gold Eagle twitter                Like Gold Eagle on Facebook