Gold Action #443

Dr. Clive Roffey
Jul 9, 2007

What sort of person swears the Hippocratic oath to protect life at all times and then attempts to cause maximum human damage with a car bomb full of nails? Forget the oath, this is the height of hypocrisy. As a Brit I can state that the UK is tolerant of many cross sections of mankind but at some stage they will draw the line and the back lash will come. The more acts of terror that are perpetrated the worse will be the back lash.

Gold has to make up its mind. Ten years ago it was condemned as just another commodity. More recently it has regained a certain monetary status as its long term trend has out performed all the leading global currencies. At this point of time the New York traders are equating gold as a proxy for dollar strength or weakness. Oil and the metal prices plus many grains and soft commodities have risen to all time new highs and are likely to scale even greater heights in the future as their long term trends remain in position. But gold is nowhere near to breaching the $850 level made 27 years ago. During the past 18 months there has been a concerted effort to hit gold by the sudden $10 smacks in New York trading. These falls do not occur over the period of the trading day but suddenly in the space of five minutes. This has all the hallmarks of an organized hit. I am not a subscriber to the conspiracy theories but would certainly concede that their protagonists have plenty of ammunition.

The bullion chart is simple. The gold price needs to break back above $660 to shake off the mantle of dollar proxy and start acting like a commodity to push forward to new all time highs. But Friday's surges in the share prices could be the signal that we have been waiting for over 18 months to trigger the reversal out of this protracted 1-2 correction in wave III.

There are so many reversal signals in the gold share prices from ridiculously oversold levels that I must expect to see some V type of reversal patterns as the prices recover from the depths of their recent bear moves. Irrespective of all the comments the gold market for both bullion and the shares remains inside a long term major bull trend that still has a huge upside potential.

The Rand is the key to a lot of the future price movement. It has formed serious triangular patterns against all the leading currencies and the next move will be decisive in establishing a new trend. A break under R6.85 to the dollar will lead to strength but a failure to accomplish this followed by a reversal back above R7.20 will lead to weakness. At this point of time there is very little indication of the next direction. It is a case of wait and see.

Resource stocks led by Anglos and Billiton that have been on our buying list for some time are still dominating global market performance. But the strength of the gold shares relative to the resource indexes is so oversold that I must expect to see a dominant gold stock performance in the coming weeks to regains some element of respectability. Whilst on this subject I like the look of the softs charts of sugar and cocoa. They are both ready for an upside surge. Global bond rates are also likely to continue to rise as inflation becomes a world wide reality.

	Brent Crude continues to rise towards all time new highs. The upside count out of the recent patterns still indicates a break through to new all time highs.
	Aluminium has also made an all time new high and is again triangulating towards continuing this trend.
	Copper is also building up for an attack on a new all time high and a potential $11 000 target level. Lead, Nickel, Tin and Platinum have all hit major new highs. So why is gold lagging?
	Gold has not yet exceeded its 1980 high of $850 but in candlestick charting the closing price is more important than the high. The close for 1980 has been penetrated by the current price. In addition the whole of the 1980 to 2002 correction was a massive wedge pattern. On a very long annual scales the price has moved to new highs but on weekly data it still needs to break above $850 to prove the point.
	Gold relative to Oil is overpriced when the ratio goes above 30 and is under priced when the ratio is under 10. At this point of time gold is undervalued relative to oil.
	Gold relative to Copper has a similar pattern with the 20 level indicating an over priced level for bullion. But currently the gold price relative to copper is vastly under valued with the relative ratio well under 10.
	Gold in $ has a strong support level at $640 with a short term resistance at $660. A break above this resistance is required to reconstruct a new bull trend.
	The JSE Gold index remains inside the big wave III. The smaller 1-2 correction has been in place for 18 months and looks ready to complete having fallen back to the 3-4 of the previous bull wave. I f this is the case then wave c will not have fallen under the low of wave a and this signifies a weak correction in Elliott that is the precursor to a strong forward move. Gold shares have a lot of catching up to do and Friday's price reversals could well be the lead into the new bull trend. Remember that wave III MUST go well above the top of wave I.
	The FT Gold index is a compendium of global gold shares and not related to one specific market. There is a massive triangular pattern that has built up over the past year and this is ready for action. If Friday's performance is repeated this week then expect a serious upside breakout in all the global gold indexes.
	Anglogold in $ is shown on its weekly chart with all the grouped oscillator buy signals. The current position is at a major low and long term buy area. Every time that the oscillators group at the bottom of their ranges there is a trend reversal to the bullish mode.
	Goldfields in $ has an identical set of data with the grouped oscillators on the weekly chart. These grouped buying areas herald a significant period of upside movement for both traders and investors. These signals remain intact until the oscillators group at the top of their range which will not be for several months to come.
	Harmony in $ has the grouped oscillator signal a lot earlier than the above stocks. In September last year it gave a grouped oscillator buy at the bottom of the trend and that remains in force.
	JSE Gold index also exhibits the grouped oscillator signals. It is again in a serious buying zone with the oscillator grouping and RSI under the lower Bollinger Band. This combination of oscillator signals is a strong buying signal.
	The XAU on Friday shot out of the confines of the recent downtrend. There is still the resistance at 150 to be penetrated but note that the MACD in the top frame has narrowed on its Bollinger Bands and is about to make a strong upside breakout. This is in my data a very powerful buy signal for gold and silver stocks.
	The HUI Goldbugs index has the same data with an immediate upside breakout with its MACD ready for take off.
	Cocoa is not in the precious metals market but the chart is extremely powerful having broken above the $200 resistance. I believe this is an interesting situation for commodity players.
	Sugar shot up to $20 and then halved over the past year. But it has formed a serious base at $11 and has a buy divergence on the RSI. I must look for much better days for the sugar market.
	Cotton has been locked inside a flat pattern for the past three years. But it has recently shot out of this formation into a new long term bull trend. I again rate this along with Sugar and Cocoa as interesting soft commodities. This merely reaffirms that we are into a serious commodity boom and that gold has to play catch up at some time.

Jul 8, 2007
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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