Share Action #241

Dr. Clive Roffey
Jan 8, 2008

A Happy, Healthy and Golden New Year to all. I really believe that this year will be the golden goose that lays all the golden eggs that have been suffering from constipation for the past two years!!

Kenya has sunk into the African political mode and is being dominated by tribal allegiances. Welcome to African politics. I forgot to mention the big 'P' in African politics in my last issue. The first election is basically democratic. After that it is all about hanging on to power. But frankly who cares with the gold price at an all time new high.

In my special gold report I detailed that the gold shares had been in a huge correction for the past two years and this accounted for their lack of performance. I also indicated that the correction had ended and that a brand new bull trend was about to emerge. During the past week the gold shares have at last got off their backsides and started to perform.

My forecasts for 2008 remain firmly entrenched in the commodities sectors. I have been unashamedly bullish on commodities for the past three years and have absolutely no reasons to change my analysis. The only difference this year will be that the gold shares will play catch up and I am looking for at least a 100% move in this sector.

My selections for 2008 will revolve around the gold shares. I am also looking at the platinums for substantial appreciation but some of the other commodity orientated shares are starting to look like major recovery situations. I am going to classify my selections into three categories namely, growth, recovery and penny stocks.

Although some of the non-mining stocks are interesting I am looking at the commodity selections to continue to be the main thrust of the performers for 2008.

The banking sector has shown short term promise but it still has not moved above the critical resistance levels and so I will not be looking at this sector until the resistance areas have been penetrated.

Do not forget the penny stocks in your portfolios. The ALTX index of penny stocks has outperformed the JSE ALSI by a mile for the past year and I expect to see it continue in this mode for 2008.

Metal prices I expect to grow through 2008 as Far East demand outstrips supply. I have long detailed that any slack as a result of a US economic slowdown will be guzzled up by the rising sun economies. Precious metals have only just started their major move and gold should easily hit my $950 target. After that I will review the situation. The base metals should also appreciate strongly as should the softs such as sugar and coffee. Oil is a slightly different matter. I am not looking for much further upside in this item and would not be too heavily exposed to oil stocks. Gold is starting to out perform oil after underperforming dramatically for ten years. I am looking for the gold sector to dominate 2008 with the penny stocks putting in some outstanding performances.

Gold stocks

I must look at the leading gold shares to awake from their underperformance slumbers and kick into overdrive as they recover from the two year corrective phase detailed in my last special report. My 2008 selections are:-

Afgold should continue its long term growth phase while Anglogold, Goldfields, Harmony and DRD should all produce over 100% returns this year as they recover from ridiculously over sold positions at the end of the C wave correction in the two year bear trend. In addition I must look at GB gold and PZ Gold as interesting side runners.

Platinum stocks

Amplats should recover from its underperformance and Implats continue to grow with EastPlats and Aquarius. Lonmin and Northam I regard as serious recovery stocks.

Commodity Stocks

Grain orientated Afgri has broken upside out of a serious resistance level while Illovo is ready to break above R24 and kick in a new bull trend. Mondi is a new one on the block and should start to perform as should Hulamin once it breaks off its large trading base. Palamin was a long term pick and has trebled since I first detailed it, and I continue to look for further progress in 2008. Urone is ready to start a recovery pattern as are Mvela Resources and Simmers. Wesizwe still needs to make the upside breakout but I expect it to occur in the near future. Petmin was detailed some time ago in the Penny Stock newsletter and it still has more to run. Diamancor, Miranda and Sallies are also included in the low priced selections. Diamancor and Miranda have made recent upside breakouts from serious trading patterns while Sallies has strong recovery potential. Matodzi has been a dog but has formed a massive base and should kick on during the coming year. ZCI is a stock that is not often detailed in any commentary but it has a huge support system and I expect to see strong growth from this copper stock. SAPPI needs to break above R102 but once through this resistance I expect at least a 50% return in 2008.

Oil stocks and others

Although Sasol and Enserve remain in bull trends I expect to see them eclipsed by the gold shares. Anglos and Billiton have slipped way down my preference list even though they still have some upside potential. Kumba, Exxaro and ArcMittal also have further potential upside but once again I expect to see better performance from the gold shares.

Relative strength

Relative strength is always a key component in determining potential performers. This year I am altering my relative strength data from using the JSE Overall index as the norm and comparing everything against the JSE Gold index. If it does not have the potential to out perform the gold index I will not be interested.

	JSE Gold has underperformed the general market on its weekly chart for the past 20 years. I am expecting a serious trend reversal to this situation as detailed in the next chart.
	JSE Gold has underperformed the JSE Overall on the daily chart for the past two years. But there is a strong buy divergence on the RSI and I expect to see a much more powerful performance from gold shares this year after the two year corrective phase.
	JSE Gold has also under performed the Rand price of gold as shown by the falling line in the middle frame. But once again there is a strong RSI buy divergence for a trend reversal and I expect to see the gold shares outrun the rand gold price.
	I repeat the basic analysis of the special report of Dec 24th 2007.While Angolgold has been triangulating the chart of Goldfields had been mapping out a classic Irregular top in Elliott. This is a classic example of the group effect in which both shares are in a correction but doing it in different ways. Once the correction is over they will again mirror each others moves as the five wave Elliott thrust wave progresses.
	Goldfields has the classic breakaway gap as it shot off the recent base. It is my strong contention that this is the end of the two year correction and based on the gap that a very strong upside charge will emerge. The same gap is also evident on Harmony and Anglogold. Breakaway gaps usually signify strong thrust waves that usually contain several further gaps as the trend speeds away.
	Anglos has well outperformed the JSE Gold index as detailed in the middle frame for the past two years. But there is a strong sell divergence signal on the relative strength for it to under perform the gold sector. Thus I would be switching into Anglogold and out of Anglos.
	Billiton has similar data as it runs up against a sell divergence on the relative strength compared to the JSE Gold index. I would be moving out of this stock into golds.
	Enserve is another potential under performer relative to the gold index and a serious switch for 2008.
	SASOL remains in a bull trend but its relative strength tells the story. There is a sell divergence for the gold shares to completely outperform the oil stocks this year.

Jan 5, 2008
Dr. Clive Roffey
Johannesburg
South Africa
email: info@utm.co.za
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"Gold Action" is a fortnightly commentary on global gold and precious metal markets produced by Dr. Clive Roffey, Johannesburg, South Africa, a leading professional independent commentator on gold markets since 1969.

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