allAfrica.com: South Africa: Bet On Gold to Catch Up With Oil in the Price Steeplechase (Page 1 of 1)

THE race is on again between the prices of oil and gold. Oil is in the lead, but my gut-feel is that gold is ready to move up.

My feeling is backed up by comparing the gold price with the price of oil. The weekly chart shows that since July 2005 there has been some correlation in humps and dips in the gold and the oil price. Overlaid by a standard error channel, it appears that the February and March gold prices were too high to be sustained. Now it is a tad below its equilibrium level of $868. From October 2006 to July last year, while the gap between the plottings was large, and oil particularly volatile, they both moved in the same direction. Studying the historic charts a similar parting of company between the two took place in 1993, 1999 and 2005, but in each case, given time, corrections drew the two more closely together. about eight weeks ago, the two parted company again, with oil continuing to rise and gold to fall, which I read as a possibility the two will draw back together.

I have overlaid the gold plotting with a stochastic momentum index which, as you see, is fast heading towards the bottom of the graph. On the previous two occasions when it has reached this position, it has been quickly followed by an upward reversal. However, a short-term buy signal will only come when the momentum index breaks upwards through its moving average.

When in January I made a count for the oil price up to $122, even I, who has used them for a couple of decades, questioned the reliability of counts. Successive counts lose credibility but the April and May dips and recoveries give us a new count though a triple top to almost $150. As there are still unfulfilled counts to $131 and $136, I'm longing to be proved wrong in respect of all of them. As both oil and coal are fossil fuels both will be all used up one day, but we hope that before then alternative energy will be available. In gold the highest count so far is $1271, with another two between today's price and the high count.

We are not alone in an electricity supply shortage and similar shortages have also disrupted mining output in Chile, New Zealand and the Congo, causing some metals to be in short supply, hence their dramatic price rises. Since mid-December the copper price has risen 31%, tin 42%, palladium 19%, platinum 31% and silver 19%.

Gold has been the laggard putting on a mere 10% since mid-December, but it is at a short-term oversold level and is, therefore, likely to lift.

Given the shortages of certain metals, the mining group was among the front runners last week. Interesting among the low prices shares is Tawana, which often enters into joint projects with Billiton and Anglo American. Tawana has nudged up into positive territory and is likely to continue upwards. Exploration company Miranda is at the top of a cycle, and unlikely to gain much more. Back at its record high on good volume, coal miner Hwange's Cycle Trends' future plotting heads downwards. Overbought AngloGold is also likely to mark time for a while. DRD is rising from an extremely oversold position, but is again likely to mark time for a while. Still in oversold territory, prospecting company Matodzi has more to gain. Ferrochrome producer Merafe has gained all that it's likely to in the short term. Northam has nudged into positive territory and is likely to continue gently upwards, but Implats and Lonmin may continue drifting sideways. Take care in ARM as it may lose in the short term. However at a triple top, a move to R2,80 will give a count to R3,60.

Sasol has reached yet another new high but, as it is overbought, it might ease a little. Regard any significant fall as a buying opportunity. The same strategy applies to Palamin and Mittal, which are overbought and may lose. Nothing short of a miracle will change the overall trend in oil and steel.

Remgro reached a new high, but is likely to move sideways. Barworld's way forward looks to be gently upwards. Hudaco has broken up through a triple top giving a count to about R103 but, in the short term, may drift sideways. Bell's count is to R58, but it may also drift sideways.

Illovo, which has an unfulfilled count to R39, sprang back into positive territory and is likely to gain more. Tiger Brands is overbought and likely to dip in the short term, but it has given a new count to R190.

Jean Temkin is the author of More Charting for Profit, a textbook on technical analysis. She has interests in Bell, Hudaco and Sasol.

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