Our technical trend indicators and cycle systems are showing a high probability set-up for an explosive or steady up move for the Gold price and Gold shares next. You can know that the spot Gold price is corroborating its upward trend on any break of 3.20. Counts call that there will be some resistance at 8.50 and more between 0.00 and 3.00 and that these levels can be reached in a matter of days – with scope that we interpret on cycles for the current push to accelerate through to around 27th May and then to the third week in June before aggressive profit taking. We call a $Gold price of well above 0 by year end.
Only if you have lived a gold run in the seventies and before – can you appreciate how strong gold can climb when people are worried about the stability of paper currency. There are several examples in history of the gold price more than doubling in a matter of months or in a year or two. Why not now ?
Fundamentally, the buy signal is being confirmed by the broad selling pressure on the US$ relative to a basket of currencies, especially the Japanese Yen, Euro and SwF. The investment community is questioning both the future of Wall Street in the next year or two and how far the US$ can fall. The huge US trade deficit cannot be sustained indefinitely and when the rest of the world that has been exporting to the US suddenly finds that the US is cutting back on imports – this situation can get ugly for those countries and for Wall Street and for US property and for the US$.
If that happens, there will be upheaval in other markets as well, with South Africa interestingly one of the best positioned to withstand some of the blast of the storms we think are coming . Lurking in the background is the worry about a large scale Middle East war or serious terrorist attack.
The investment community that only a few months ago was calling gold …”A relic of history…” is now sitting up and taking notice of the implications of currency and gold price moves since 11 September 2001.
So what does one do? Does one buy gold shares right up here where some technical indicators are screaming that golds are overbought and are likely to at least dip 10% – 25%? Then you begin to believe the potential and just when you think you should bite the bullet not to miss the action, your broker or popular earnings analyst tells you – you are mad – and you hesitate again. This time they tell you that the Rand is getting stronger and that is no good for gold shares.
Nonsense. Yes the Rand has recovered somewhat from last year’s selling – and may be discounting some positive announcements on exchange control and certainly is benefiting from prospects of resources and gold mines doing well. One of the pundits is even enthusiastically saying that Mr Shuttleworth may do a press “rollout” – encouraging skills to return to SA – the way he will shuttle part of his investments….
Yet the investment strategist looks into the future – if the last five month move of the Rand has been to firmer, then the odds are the next move can be weaker – or at least not much more than a few per cent stronger. An unhappy hungry Zimbabwe and little that has changed structurally in SA to attract investment – in a turbulent world climate – makes the Rand still vulnerable. Everyone seems to have forgotten that all that has happened is that the Rand relative to the Euro has not even strengthened to the awful levels of November last year (8.50 ish). Guess what will happen when investors realise that the major trend to weaker of the Rand is intact? Gold share prices will be fuelled not only by a stronger gold price in global currency terms, but in terms of the Rand as well.
A look at the JSE All Gold Index shows various count scenarios on behavioural evidence: the scenario we are expecting at this stage is that by this time next year we can see the JSE All Gold Index probing resistance e.g. at 4920 or 5430 and perhaps reaching 3850 or 4170 this year already. It does not matter too much how closely the action actually achieves the targets – but what the trend evidence is telling you is that the upside for golds is still investable. Don’t become one of the majority who hesitate now – but end up buying even higher than now, when they should be selling.
Although the R150 bond is firmer today, financials are under pressure and are corroborating our sell signal for JSE financials – depending on your long term strategy. What we do know is that all those lovely banking and insurance shares which have been rallying recently, will be much cheaper in a few months.