Gold Action #409
Wave 7

Dr. Clive Roffey
12 Dec, 2005

My short sojourn in London was too brief. It was a very nostalgic trip back to the city of my birth, evacuation during the war, and University education. So much has changed, but so much remains the same. Probably the most startling change for me was the development of the Canary Wharf complex. The last time I visited London in 1980 it was the derelict dockland warehouse area where no one except the locals went at night. But it has been transformed into the stainless steel, glass and marble mini Manhattan sky scraper fortress of the new brash financial district. No more the bowler hat and rolled umbrella brigade but a dynamic, vibrant city within a city.

My son's graduation at Oxford was extremely formal. There was continuous doffing of mortar boards and a very serious programme in total contrast to our more exuberant ululating ceremonies. The whole procedure was conducted in Latin which severely tested my old school day studies.

But I go away for ten days and the Rand decides to inordinately strengthen far in excess of all other currencies against the dollar. There must have been some serious buying of Rands for this to happen. I wonder if this is the precursor to a major takeover by a foreign concern?

Gold has, as anticipated by my Elliott Wave analysis, forged ahead in the wave 7 of its nine wave move. At $525 we are fast approaching the point at which a breather is necessary prior to the final massive surge to above $600 next year.

The South African gold stocks have been restrained by the effect of a strong Rand, but this is likely to be a temporary situation and they are likely to catapult as they make up lost ground. I expect a powerful gold share market on the JSE going into the New Year.

Resource stocks remain locked into stable bull runs. There are no signs of any divergences or other top formations. Sure there will be corrections but the overall trend remains very bullish on resource stocks for the foreseeable future.

But the key to this gold share market on the JSE lies with Anglogold. It is very close to breaking above its April 2002 market high at the top of wave I. This signals that it is en route to the next bull market in wave III that is usually the longest and strongest. But the most important aspect of this data is that a break above the top of wave I by Anglogold will also force all the other gold stocks to do the same and move back above the top of their respective April 2002 highs. This even includes Durban Deep. There is a hell of a lot more to come in the gold shares.

But in $ terms it is interesting to note that Goldfields has already broken above its $16 peak of April 2002 and triggered the signal that the rest of the South Africans will follow in its footsteps.

As expected silver has rocketed to $9 and is well on its way to my $10 target. I have been bullish on silver stocks for a long time and it is now time to reap the real rewards.

	Anglogold is the key to the long term future of this gold share market on the JSE. It has broken out of the confines of the flag pattern that contained it since the April 2002 high. The previous peak at R347 is a key level. This represents the top of wave I and a move above this will confirm that the whole gold market is on its way into wave III. Such a break would be extremely bullish for the whole gold share market.
	The chart of Goldfields in $ in New York has just broken above its April 2002 peak. This implies that all the other gold stocks on the JSE will follow suit. Not only is this a powerful push above the top of wave I but it is also a major breakout above the huge red down trend across the share price tops since 1987. To say that this is a huge breakout signalling a massive upside potential for the JSE quoted stocks is a serious understatement!
	Now compare the above chart with that of Goldfields on the JSE. It is miles away from the previous R171.50 peak of April 2002. If Elliott is correct this share price MUST go well above this level into wave III. I rate the gold stocks as having at least 100% capital gain potential for the next 12 months. We have not even started the real bull market run. Now you see why I am expecting this gold share market to start accelerating, not correcting!!
	Harmony remains well under the top of April 2002. This implies that it has a hell of a catch up job to do and is likely to outperform GFI in the process. Even though GFI has great bull market credentials I must continue to look at HMY as a probable better performer in the South African gold sector. In addition there is a large flat top broadening pattern indicating a major upside market target well above the April 2002 high.
	Drooy continues to be dominated by the seller in the market that is holding the price at its major resistance level. Once this seller is out of the way this stock will move strongly back up to $3. Although it appears to have lagged the market recovery in gold performance it will catch up once this seller has finished.
	Western Areas (WARSF) was detailed as a late buy in the last issues. It has not disappointed. But it has hit against the major overhead selling resistance and will need to break above this to continue the bull trend. I rate this stock as a hold at this point of time.
	In previous issues I have detailed the buy signal on Anglogold as it broke out of its triangular pattern. This has only just started toe move and a weaker currency will certainly accelerate progress.
	Anglo American Platinum was detailed as a buy earlier in the year after it also broke out of its triangular pattern. But the key to this data is the MACD in the top frame and RSI in the bottom frame that are both confirming the new highs on the share price. There are no sell divergences and this indicates a stable bull market.
	Impala Platinum was also detailed as a buy earlier in the year. Once again both the oscillators are confirming the new highs made by the share price indicating a stable bull trend.
	During the past two years the share price of Hecla has continued to fall. But it has mapped out a serious base pattern indicating an imminent trend reversal. A classic falling wedge has been formed and this usually leads to a vertical price catapult once the pattern has been completed. IN addition the RSI has formed a buy divergence and I continue to rate HL as a major buy.
	Kinross is another under valued precious metal stock that is ready for some serious upside action. It has developed a triangular pattern similar to the JSE gold stocks. The recent break above $9 has triggered the next upside bull surge. I rate this stock as a buy at current levels.
	Apex is another stock that has formed a large base over the past two years and is breaking out in readiness for a substantial rise off this base area. This is another stock for late gold and silver bulls.
	Agnico Eagle is another late mover and candidate for slow gold bull portfolios. It has just smashed above its major resistance that has held it in check for the past four years. This is a huge breakout and any minor correction will be a serious buying opportunity for investment portfolios.

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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