Gold Action #418

Dr. Clive Roffey
Apr 3, 2006

Back onto terra firma SA. The flights to the UK on the Virgin airbus were terrible. On the way over to the UK the seats were so close together that I could not get my legs in behind the seat. They are OK if you are less than 5 ft 10 ins but if you are taller fly SAA Boeing. On the way back the food was disgusting. So all in all my first time with Virgin was not a great flying experience and in future I will stick to SAA for long hauls!!!!!

Now for the good news. Gold has rocketed above the $555 resistance and is on course for my three year target of $610 to $625. When it achieves this level I will have to rethink my long term strategy. I will remain very bullish for the upside potential over the next few years but will need to analyse the immediate picture. I have already detailed that there are further potential counts to $685 and $725 but the data will have to confirm them once the $610 is reached.

The picture with the shares is very different. As I have always maintained, the share prices MUST go well ABOVE the previous bull market peaks of mid 2002. So far only Anglogold has achieved this effect whilst the rest are still way behind. I must therefore look at the shares as being in the early stages of a long term bull trend with a substantial upside still to come. On this note I was amused to see the joint CEO of a leading broking firm stating that there was no value in the gold market as the Rand price of gold had not moved. What rubbish!! The key Rand price of gold has appreciated 50% in the past year and is only one day away from an all time new high and still on target for my count to R5400.

In a bull phase the shares will outperform the Rand price of gold and in a correction they will underperform. All the data indicates that the shares are starting to appreciate against the Rand price of gold indicating a new bull phase.

The silver price has rocketed as expected and is out performing gold, again as often detailed. But the Dow is still vacillating under the 11 500 resistance and failing to make the final decisive breakthrough. If it does break above this seven year resistance then I must look for a further 5000 points on the index. But if it fails then heaven help us, because the share prices certainly will not.

What is the connection between Mozart's 'Cosi Fan Tutti', Shakespeare's 'Twelfth Night' and the SA governments aids policy?? They are all a comedy of errors!!

The resource market is still alive and charging. Sure we will have a few sharp setbacks but stock market action remains firmly rooted in the resource arena. Forget about general equities, apart from a very few selective stocks. This is not a market for investing in broad based unit trusts; it is a very specific sector orientated market.

Finally the oil price has broken above a key resistance level and has signaled its intention of attacking the $80 a barrel level. This will put a dampener on economic growth.

Stay with the gold, platinum and resource stocks. This is where the market action is likely to remain going forward.

	The Rand price of gold is specifically for the joint CEO. It is only one day away from an all time new high that was made as the Rand plummeted to R13 to the $ in late 1999. This is a massively bullish chart that has just smashed above the resistance at R3500. During the past year the price has appreciated more than 50%. Better than most general equity stocks. I remain very bullish on this leading data for the direction of gold shares.
	The Brent Oil price chart was detailed on TV in last week's Roffey Review. I showed the resistance at $65 and indicated that a move above this would lead to an attack on $80 a barrel. The price has surged through the $65 resistance and is ready to hit an all time new high. I look for further upside out of this chart.
	The Rand value of Brent Crude oil was also detailed on last weeks TV slot. I showed the flat top at R400 a barrel and detailed that an upside breakout was imminent. This may not have any real stock market effect but for farmers and industry it is a serious killer. I gave a buy signal on SASOL in the daily reports some three weeks ago and I look for action in this stock as well as Billiton.
	I continuously detailed at the start of this year that the Rand was forming a base at R6 and was ready for a bounce back up to R6.35 against the $. I looked for a breather at this level due to the past major resistance. The key to the currency is now the R6.35 level. If it breaks above this area than a move to further weakness at R6.85 can be anticipated. There is strong support for the currency at R6.10 and I do not expect it to break under that support. Watch for the directional break above R6.35 or under R6.10 as this will have a huge affect on the JSE and the price of the gold and resource stocks.
	How many times have I detailed the huge base pattern on the price of silver? This was a 12 year base that is only just starting to move into top gear. This is a seriously strong runaway market. The MACD is into overbought territory but there is no sign of any divergence sell signals. I must look for a move to the $15 level before this bull market finally ends.
	I have previously detailed the Palladium chart and its major base pattern. It is a miniature version of the above base on silver. The upside charge is nowhere near to its peak and I must continue to look at the palladium price to outperform platinum. I look for a target of around $600 before this long term trend runs out of steam.

I have detailed my Elliott count on the gold price for the past five years starting with the huge A-B base pattern that most other analysts mistakenly called the 1-2 first correction. It was not a correction but the second leg of a massive base. It was a typical example of the 'Chinese Torture' base detailed by Prechter in his book on patterns.

I have also detailed that the recent correction back to $535 was a minor 7-8 in a nine wave move and that the price would go well above its recent high as it soared into wave 9. This has occurred. What happens when it hits 9?? That is the key question.

There are two alternatives. First it can signal a completion of the recent bull market that started in May of last year and have a serious correction back to the $555 level as wave 8 of the main trend. Alternatively it can have a minor correction into a wave 10 and then continue into an even stronger 13 wave extension. At this point of time there is no data that indicates the direction of the alternatives.

Studies of the oscillators and divergence will provide the clues. A serious sell divergence at $610 will trigger a trend reversal back to $555 but if the RSI makes a new high at $610 then I would expect to see the strongly bullish 13 wave continuation occur.

But the share prices are still way under their 2002 peaks and as I have so often stated, if Elliott wave analysis has any validity, the prices MUST go well above the 2002 peaks. This is not in sight at the moment and my analysis indicates that the shares still have a hell of a lot further upside to come. Thus I would tend towards the 13 wave extension to test $700 rather than a serious correction at $610 back to $555. But we must wait for confirmation from the oscillators and divergence analysis.

Apr 2, 2006
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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