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Let's get ready to rumbleStephan Bogner
Since 2001 the value of the Rand has more than doubled against major currencies as can be seen on the Rand-Index above. Despite a lowering of the interest rates by the South-African (SA)-Central Bank a few weeks ago, the Rand has not devalued noticeably. Nonetheless, one can see that the green upward trendline has been breeched in the middle of March but still being above the lower green support line. More, the Rand still holds above the red trendline which represents strong support as the breakout above was in the form of a one year triangle. The Rand is generating a sell signal when this red support level at 0.16 along with the lower green support line is being breeched. The RSI and MACD have reached resistances. The general sentiment for SA mining shares is quite bad since quite some time now and might have reached the apex with the latest GFMS survey showing the unhealthy developments in the SA mining industries. In order to receive a buy signal for SA mining shares in general, one not only needs to look for a sell signal at the Rand-Index but as well at the Rand in Dollar. More importantly, the price of precious metals calculated in Rand needs to be rising strongly, so the mining companies can start making profit. Since 2002 and the beginning of the downtrend of the Dollar, the Rand-Index rose strongly. The Gold price in Dollar terms rose strongly as well during that time. The effect on the Rand-Gold price was that it was declining successively since 2002. As per the below chart(s), there will be either an explosive continuation or reversal of the ongoing trend very soon.
As can be seen above, the Rand-Index rose stronger than the gold and platinum price did in Dollar. The important aspect to notice is that this rise was in the form of a triangle which generally represents a "sideways"(!) consolidation period. The implication of a triangle is an explosion to the up- or downside. As the above 2 prices have reached the apex, the decision is soon being made. To generate one buy signal for SA-mining shares, the above prices need to crash as this would make the gold and platinum price rise strongly calculated in Rand. The best and healthiest (in terms of sustainability) scenario for this to happen would be a strongly appreciating gold and platinum price in Dollar terms and a strongly depreciating Rand in Dollar terms. Let's first take a look at the gold and platinum prices in Dollar terms which are both showing that a big decision is soon to be made as the apex is being close:
As the Rand-Index was appreciating since the start of the Dollar downtrend beginning in 2002, the Rand-Index had strongly outperformed the Dollar by more than 200% in three years:
As outlined in previous contributions, it is possible that the Gold price in Dollar can rise despite a strong Dollar, but of course it would be even more bullish for Gold if the Dollar is depreciating further. In order to make the Rand depreciate against the Dollar, the healthiest scenario for the SA mining industry would be that the Rand is depreciating faster than the Dollar. Whatever being the case, the Rand/Dollar is moving in a triangular formation since the end of last year and has finished 4 waves in between the red boundaries (ideally, the impulse movement out of a triangle occurs after 4 waves). Even if the current red triangle breaks the lower leg, strong support lies at the green trendlines. Only if the Rand/Dollar is breeching the lower green trendline below 0.15 one can count with a strongly and sustainable depreciating Rand/Dollar. As the general sentiment is quite bullish and optimistic for the Dollar at the moment, let's have a closer look at the Dollar-Index itself. Since the beginning of the new downtrend of the Dollar in 2002, the price action was running in between boundaries of the "core" blue triangle whereupon 4 waves the impulse movement out of the triangle occurred. However, these impulse movements were not sustainable and were creating the "outer" red triangle. After 4 waves within the red triangle the impulse movement was pushing the Dollar out of the triangle ("Breakout"). The Dollar now can start rising strongly or crashing any time. However, we may witness a "Pullback" to the upper leg (or apex) of the red triangle, before the final decision will be made. An empirical study on triangles showed that mostly they are breaking out _ before the apex and not necessarily have to touch the apex before the final movement. As for the current Dollar "Breakout," the violet trendlines show where such a move might go to. If the Dollar breaks the upper violet resistance, a move to 98 points is possible. Yet, it can be only a breakout with a Pullback following.
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