Why we Like Anglogold

March 8, 2001

A major blue-chip mining company, Anglogold, has come under attack from a misdirected campaign within the ranks of gold investors. This campaign threatens to shoot down the so-called "leveraged" blue chip mining shares, by exposing their alleged complicity in a gold price fixing conspiracy, but as the claims have no merit (as we shall prove), the campaign is utterly doomed to failure.

An open letter from a member of the Swissbourgh Group to Mr. K. H. Williams, marketing director for AngloGold, contained the following message:

"I have followed the GATA/Howe lawsuit very carefully for some time. Through nominees and associates we hold a very large number of Gold Fields shares. It is clear, even to a laymen, that it is in the interest of AngloGold to effect takeovers (that this has happened and is still happening is a fact) of gold producers at a low gold price (effectively depressing market value of any such producer who is in the sight of an AngloGold takeover). The proof in the GATA conspiracy issue Mr. Williams is that AngloGold is snapping up gold producers suffering under a manipulated gold price and effecting takeovers at depressed market values.

"The GATA conspiracy issue is not circumstantial, AngloGold's takeover bid for Gold Fields prior to the discovery process in the GATA/Howe lawsuit, when an imminent rise in the gold price is on the cards, will put Gold Fields beyond the reach of AngloGold is an incontrovertible fact. The conspirators and the beneficiaries of a manipulated gold price are acting unlawfully, more specifically when they continue to do so whilst these very serious allegations are being investigated. You need not to be told that the matter is very serious. If the conspiracy is merely based on circumstantial evidence as you are alleging, why do you not actively support the discovery process in order to get to the bottom of these conspiracy allegations and for AngloGold to discontinue takeover bids under circumstances created by the conspirators and manipulators of the gold price. Surely AngloGold would have no objection to delay its takeover bid of Gold Fields until at least after the GATA/Howe discovery process has been completed and after evidence emerging from this discovery process has been considered and evaluated. The result of the discovery process will have a positive effect on the gold price. This result will not be in the best interest of AngloGold. It is requested that AngloGold delay its takeover bid for Gold Fields until at least after the GATA/Howe discovery process and the evaluation of the evidence flowing therefrom…"

Swissbourgh's statement that the result of the GATA/Howe discovery process "will not be in the best interest of AngloGold could not be further from the truth. The fact of the matter is that when gold's price begins rising, all the ships in the sea will rise with it, and this includes the blue-chip mining shares like Barrick and AngloGold, irrespective of how leveraged they are. Whether AngloGold acquires Gold Fields or not is germane to the fact that its underlying technical condition is quite strong. As the "tape tells all," we see quite clearly that the unsound allegations hurled against Anglogold are erroneous, and that Anglogold's financial condition and business practices are quite sound.

A trader could learn a lot by studying the chart of Anglogold Ltd. [AU:NYSE]. This blue-chip gold company has a chart pattern that perfectly mirrors that of the XAU mining index. Accordingly, we advise relegating most of your trading activities around Anglogold and blue-chip gold stocks which share a similar pattern and dominant cycle rhythm.

Anglogold's dominant interim 60-week cycle, which tends to bottom in the spring of each year, has not yet bottomed but should do so by later this spring. Already, however, the stock shows signs of heavy accumulation. An 18-month declining trendline (i.e., line of supply) was overcome on high volume last week—a bullish sign. Although Anglogold has met with selling the past few trading session, the buying has been heavier than the selling and this must certainly qualify as a natural reaction.

We judge Anglogold to be short-term bullish - and it should be bought at current levels. Anglogold's 40-week cycle bottomed last week, which produced the big high-volume upward move. Since a new upward-ascending trendline has been established, the short-term trend should be considered up for now, but watch closely the upcoming $20 level. Ultimately, Anglogold will not become an all-out buy until the $19.75-$20.00 overhead resistance level is taken out, for this is where buyers will meet with a five-year trendline.

Also, $20 is a big, round "selling" figure which naturally brings out sellers and profit-taking at any rate, especially when this level has not been reached in some time, as in Anglogold's case. Therefore, we must watch carefully for a reaction and probably pullback around $20. For now we expect a further move toward the $20 level, then a reaction and probably a pullback and further consolidation into late May/early June. From there, Anglogold's 60-week cycle bottoms and a new upmove will begin, this time taking out the last line of supply and creating a booming new bull market in this stock.

Note also how a bullish bowl formation has taken shape in Anglogold's weekly chart over the past few years. This shows net accumulation has been taking place, but bowls tend to be agonizing, protracted affairs. We are near the end of the accumulation stage and the mark-up stage is close at hand, but we're not there yet.

Short-term traders should stay long this stock, watching carefully for selling around the $20 area; intermediate-term and long-term traders avoid until the signal to buy is given, most likely this summer. The bottom line, however, is that Anglogold is in the process of beginning a massive long-term bull market and as its fortunes are tied directly to the price of gold itself, Anglogold investors stand to profit immensely.

Clif Droke is the editor of the three times weekly Momentum Strategies Report newsletter, published since 1997, which covers U.S. equity markets and various stock sectors, natural resources, money supply and bank credit trends, the dollar and the U.S. economy.  The forecasts are made using a unique proprietary blend of analytical methods involving cycles, internal momentum and moving average systems, as well as investor sentiment.  He is also the author of numerous books, including “2014: America’s Date With Destiny.” You can view all of Clif's books here. For more information visit www.clifdroke.com.

The term “carat” comes from “carob seed,” which was standard for weighing small quantities in the Middle East.

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