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Prefer gold over gold equities
Colin Abrams
Posted: Mon, 17 Sep 2007
[miningmx.com] -- THE GOLD PRICE is suddenly in the spotlight after breaking through the $700/oz mark.
While the $700 level is more of a psychological level than a technical chart level, we take a look at the gold chart to see what targets are being shown.
We also look at a chart of South Africa’s largest gold producer – AngloGold Ashanti, which has had as good rally but is still lagging the gold price.
The chart of the US dollar gold price points to it heading higher over the coming months. The best way to capitalise on that is to buy the gold price itself (bullion). Despite lagging, gold shares can also be bought – but only after a pullback.
Please note: For more recommendations and charts by the author on shares, stock indices and commodities please go to www.themarket.co.za.
GOLD PRICE (US$) – HIGHER TARGETS
Trend: Short term up, but overbought. Medium and long term up.
Strategy: Buy gold bullion, ideally on a pullback towards $690.
(Daily)
Click on image to enlarge
* The gold price has broken out of symmetrical triangle (lines 1 and 2), which was shown here some weeks back. That breakout is significant and should lead to higher prices over the coming months.
* In October 2006 the price also broke out of a large wedge (lines 3 and 4) and still has an upside target in place from that breakout (Target 2).
* However, the daily relative strength index (RSI, on top) is overbought, which implies a short-term pullback before more upside.
* Look to buy the gold price on a pullback towards $690 (spot). Buy on an upward reversal from there. Note: If the price goes lower than that the next support level will be $680 (line 2) for buying.
* In terms of upside targets, Target 1 is $740 (minimum) – ie, the height of triangle 1-2 projected up. Target 2 is $770 – ie, the height of pattern 3-4 projected up. The latter target should be reached by February 2008, if not sooner.
ANGLOGOLD ASHANTI – OVERBOUGHT
Trend: Short term up, but overbought. Medium term sideways.
Strategy: Buy after a pullback towards R278.
(Daily)
Click on image to enlarge
* AngloGold Ashanti is outperforming South Africa’s two other large gold miners (Gold Fields and Harmony) on a relative basis.
* The price is trading in a large channel (lines 1 and 2) and, over the medium term, in a broadening formation (latter part of line 1 and line 4). The price is currently testing the 200-day moving average (resistance) and is also close to line 3 resistance (at R316). Therefore, short-term upside is limited.
* In addition, the daily RSI is clearly overbought, which implies a short-term pullback to come.
* Buy after a pullback to R278 or lower (on an upward reversal from there). While the price may still move to line 4 (R323) over the short term before pulling back, as it’s overbought it would be wiser to rather wait for the pullback before buying.
Note: Look for an eventual move to line 2 at R350 in next three to six months.
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