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Gold Action #442

Dr. Clive Roffey
Jun 11, 2007

I was listening to a discussion on the radio whilst driving this week in which the leading light on the medical council was espousing the virtues of a one tier medical system. His proposal was that this would be funded pro-rata from earning levels. Thus a high earner would pay more for their medical aid than a low earner. This has obvious altruistic values. But it also has some serious flaws. Why should high earners pay more for a service that should be the same for everyone? But what I strongly object to is being forced to pay my contributions towards the care of HIV patients. They contracted this disease through sexual promiscuity and should face the consequences and not expect others to foot their bills. Forced contributions towards HIV patients is merely adding to the lack of self control on the basis that I can go ahead and screw myself silly while the Government through the high earners will pay for my lack of sexual discipline. That is cockeyed. Similarly why should I be penalized and contribute towards heart and lung problems brought on by smoking. Smoking was the choice of the individual and I do not see the necessity for higher earners to foot the bill for their indiscipline. If you want to screw up your health by indulging in proven unhealthy activities then it should be your problem and not dumped on the rest of us. I pay for my own and my families health care and should not be lumbered with contributions towards undisciplined sex, smoking or drinking diseases. Socialism and its central government control ideals are alive and well and living in South Africa.

Having got that off my non-smoking chest, let's sort out this gold price. Once again the US knocked the gold price in excess of $10 overnight several times last week. High interest rates were the supposed catalyst. But I always thought the argument was that high interest rates were a contributing factor to inflation and that gold was supposed to be a hedge against inflation. One thing I have learned from over 35 years in this market is that US traders can play the market any direction for any reason they like. There is no consistency in their logic. If it can be used to make a short term profit, then role out the reasons. The bottom line is that bullion has fallen 5% whilst the dollar has appreciated 2%. There is something funny somewhere.

The Dow collapsed 200 points on Thursday night from an overbought position. But I do not look at this as the end of the market move. Sure the market was overheated in the short term but there are no sell divergences or major danger signals on the weekly data and I continue to look for the 15 500 target to be achieved before we see any protracted corrective phase.

Oil continues to dominate the commodity charts. It has strongly out performed all the precious metals since February. But there are signs of a divergence sell signal indicating that the superior performance of the oil price is about to be changed. This does not mean a fall in oil but a lessening of the superior performance against the precious metals.

The Rand has turned weak as expected and I must look for further short term weakness in the currency. Meanwhile the shares continue to seriously under perform the gold price in both dollars and Rands. All sorts of reasons are being propounded for these actions but I remain bullish on the gold share market to finish the 18 month correction and revert back to normality and out perform the metal prices as it moves into the big wave III of this long term bull market.

The Dow had a classic sell divergence on the daily data indicating a short tem trend change. This has occurred. But already the RSI is under the lower Bollinger Band. It will take some period of churning to re-establish the long term bull market and I anticipate a month or so of uncertainty.
The DOW on the weekly chart has no signs of any divergence sell signals. In fact the data is exactly the opposite as the RSI has followed the index to all its new highs indicating a stable long term bull market trend. The short term value was overbought but I do not expect any more than a period of churning. The long term target of 15 500 remains intact.

In a recent daily report I detailed the weekly 30 year T-Bill rate chart and forecast that it was ready to break upside out of the ten year downtrend. This has started to occur. There is an upside target count out of this data to 6.2%.

Get used to the idea of rising bond rates for the foreseeable future. There is a long term buy divergence on this chart and I look at the current situation as the end of a ten year period of falling bond rates.

I continue to rate this data as one of the strongest in the charting annals. It shows the Nikkei in $ in the bottom frame and its relative strength against the Dow. It does not take too much analysis to see the bullish nature of the Japanese market relative to the US markets. I strongly believe that international money and investment should be concentrated away from the US and Europe and into Japan. This is a hugely powerful chart and should not be ignored. Go EAST young man!! Get into unit trusts or mutual funds that focus on Japanese stocks. Forget about the US and Euro markets.

The effect is even more pronounced when the Nikkei is compared to the Dow without the currency adjustment.

Bullion on Friday in New York was smashed under the $655 support in one five minute session. It has pulled back to test the main support of the past year at $620 to $640. This long term support should hold, especially as the RSI and MACD are currently refusing to mirror the new gold price lows.
The Rand price of gold has been trading for the past five months between the support at R4600 and resistance at R4900. I am looking for the support at R4600 to hold in the short term.
JSE Gold index has broken under the support at 2700 and caused panic. But the RSI is refusing to confirm and the oscillators are grouping at the bottom of their range in the buying zone. I have detailed all the previous grouped oscillator buy and sell signals. This is again a buying area and not a panic selling area.

The JSE Gold index in the bottom frame is compared to the Rand price of gold in the top frame. Over the past 18 months the index has lost 40% of its relative value and over the past year 20%. Mining costs have certainly not risen an equivalent amount. This implies that in value terms the gold shares are ridiculously cheap relative to the Rand price of gold. In addition the chart of the past 18 months shows the blue relative strength data to have formed a falling wedge pattern. Also the current relative strength position is extremely oversold. All of this implies that the gold shares are due for a significant rally in relative terms to the rand price of gold.

The events of the past week do not alter the long term picture. The Elliott wave counts remain intact. We are into big wave III and are finishing off the 1-2 minor wave before entering wave 3.

Jun 10, 2007
Dr. Clive Roffey
South Africa
Roffey archives

"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.

'Gold & Silver Penny Stocks' is the sister publication to 'Gold Action' and is produced by Dr. Clive Roffey; croffey@mweb.co.za

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