Gold Action #427

Dr. Clive Roffey
Aug 7, 2006

Welcome to the idiosyncrasies of South African politics. I have just listened to the news and heard that the attorneys for Jacob Zuma are negotiating with the State to pay at least part of his defence costs in his upcoming fraud trial. The State is prosecuting him for fraud and now discussing contributing to his defence. What a conflict of interests!!! It could only happen in SA.

I suppose that the logical extension of this proposal is that all the members and ex-members of parliament who are the accused in the 'travelgate' scandal will also negotiate for their costs to be State funded. Or for that matter why should not every tax paying citizen have the right to have State funded legal costs. This laughable situation gives new meaning to the old adage of 'what you gain on the roundabouts you lose on the swings'.

Meanwhile the Middle East crisis gathers momentum and lives on both sides are being forfeit.

But one of the interesting aspects of the current state of affairs is that the gold price is purportedly moving on the back of this crisis. However when one looks across the whole spectrum of the metal charts the pictures are virtually identical. The next major bull run in metals is very close at hand. It is not just gold but all the base and precious metals together that have outstanding pictures. There is far more to the fundamentals for such a broad based potential move than just a minor war zone.

Every metal chart has mapped out a triangular format since the beginning of the year. This pattern is almost complete and triangles are usually continuation signals that the trend into the pattern will be the repeated out of the pattern. From copper to lead and silver to palladium they all have triangular formations.

Interest rates around the world are rising as fears of global inflation gather pace. The latest 50 point rise from the Reserve Bank has had a negative effect on the banking and retail stocks on the JSE as I warned some nine months ago.

Meanwhile the gold mines are starting to look as though profits can be expected going forward and I look for the fundamental analysts to change their tune in the coming months and to start analyzing forward earnings and not current earnings. This will be a final signal that we have entered wave III of the long term gold bull market.

In the last issue I detailed that I had produced a report on uranium stocks in my weekly penny stocks newsletter. I was inundated with requests for data to such an extent that I am producing a monthly technical analysis of uranium stocks across the whole spectrum of leading producers to junior exploration companies. At this point of time I do not like what I see!! Frankly I would not be buying uranium stocks, but you will have to read this week's issue to see why.

The Dow has again attempted to attack the overhead resistance at 11250. It does not look to have the latent energy to force its way above all the selling that exists at that level. The longer this huge sideways pattern continues the more powerful will be the resultant move. Either a devastating collapse or a vertical catapult will ensue. But the ensuing move will be extremely dynamic. This will be a great move for traders once the breakout has been confirmed. A move back above 11600 will trigger an upside to 15000 but a fall under 10500 will see a 4000 point collapse. At this point of time it is in the balance. But the eventual move will affect every market around the globe. Stay focused on the Dow and its next breakout.

Gold needs to break above $655 to confirm its new bull trend breakout from the triangular pattern.

Despite the machinations of the gold price and the recent minor strength of the Dow the $ gold price continues to out perform the US general equity market. Stay with gold stocks.

The same data applies to silver. The precious metals are in a major bull trend relative to global general equities.

The Aluminium price is also outperforming the DJIA as shown in the top grey chart.	So is the oil price.
And Copper	And Lead
And Platinum	And Tin

All the metal charts are out performing the general equity markets and look set to continue in this mode for some time. There is no sign of any divergences to indicate an end to this superior performance. In fact all the data points to a burst of new out performance.

	This is a very important chart. It shows the JSE Gold index relative to the Rand price of gold in the top frame. The downtrend that has been in force since 1986 is still intact indicating that gold shares are underperforming the rand price of gold. But there is a base formation that has been building for the past few years that indicates a new upside breakout is very close at hand. This implies that the shares are set to out perform the rand gold price.
	The Philadelphia gold index is compared to the $ Gold price in the top chart. The index in the bottom frame has been ain a strong bull market for some time. But the relative strength has not yet broken into a new bull trend. There is every reason to expect that a new bull break into superior strength against the gold price is close at hand and that will confirm the existence of a true bull market in gold shares.
	The JSE Gold index is shown relative to the JSE Overall index in the top frame. The relative strength data is ready to break out of its base formation and move to the upside. This will result in a new bull trend of performance.

Aug 5, 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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