Gold Action #425

Dr. Clive Roffey
Jul 10, 2006

The gold market marches on. We are into the wave III of the long term bull run and traditionally this is the longest and strongest of the market as it is where the fundamentals start to agree with the bullish technicals that have been in force for so long. Did you notice that when the gold price dived down to $550 all the sudden fair weather bulls were suddenly silenced. Once the gold price moves back above $650 expect to see a return to massive bullish predictions.

	Palladium is a classic example of the effect of the RSI ranges in bull and bear markets. In the bull run from 197 the RSI was constantly pushing above the 70 overbought level whilst the corrections failed to move under the 30 oversold level. The opposite occurs in a bear market where the RSI continuously dips under the 30 oversold level and fails to push back above the 70 overbought level. Currently the RSI is trading above 70 and failing to dip under 30 on the corrections. This is a signal of a long term bull trend.
	The $ Gold price has the same data. Its RSI is constantly trading above the 70 overbought level and failing to penetrate under the 30 level. This is even more pronounced as the recent sudden $180 collapse in the gold price again failed to push the RSI into oversold territory. This is a signal of a major bull trend. Also note that the RSI has mirrored the new highs of the price indicating a stable bull trend.
	The Rand gold price has also formed a series of RSI ranges commensurate with the bull and bear market types. Currently the data is exhibiting strong bullish trending. Once again note that the RSI is moving to new highs with the price thus indicating a stable bull market.
	Silver has the same bullish range indications on its RSI. Even the recent collapse in the price failed to force the RSI into the oversold levels. This is a powerful bull trend.
	The reverse divergence scenario on the daily chart allows counts to be made. The difference between the two lows gives $32 on the gold price. This is added to the recent peak for a short term target of $757. Thus I continue to look for my target of $750 to be met. BUT this time the shares will lead bullion ... not lag as in the last upside bullion charge to $725.
	The long term weekly chart for Silver has a difference between the lows of $2.98 to be added to the recent peak of $14.94 for a target of $17.92. This is a huge bull market in precious metals that has resumed and is likely to gather momentum going forward to take out the recent highs.
	The JSE Gold index is shown with the flag pattern that I so often detailed. That was the I - II correction. The top of I was signalled by a classic divergence and the bottom of II by another classic divergence. But note the range of the RSI during the correction and its constant attacks on the 30 level and total failure to break above 70. The converse is true of the current situation where the RSI is above 70 and failed to break under 30 during the recent correction. This is a stable powerful long term bull market.
	This is my long term data for the JSE Gold index. We have completed the I-II correction and have commenced wave III. This wave III MUST go well above the top of wave I, as I have repeatedly detailed. The recent correction was the 1-2 in a five wave movement that are the sub waves of wave III. Wave III is not likely to be completed for some time and will take the share to much higher levels than current prices. This is a buy on the dips and hold market. It is a long term bull market. And do not forget that even with the large corrective wave IV there will still be a massive bull wave V to come.
	The JSE Gold index is shown with its relative strength against the JSE Overall index in grey. For the past 8 years this relative strength has been forming a massive base pattern. This grey chart is ready for lift off. This implies that the gold index will outperform the overall market for some considerable period of time to come. This is not likely to be just a short term show of strength but a protracted trend of superior performance. Gold shares are a necessary inclusion for all portfolios.

Jul 8, 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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