Technical analysis: Rand gold price ends bear trend

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Johannesburg - A significant event has recently occurred on the rand gold price as it has broken out above an 18-month resistance line, to effectively end its bear trend. It now has a far higher target in place (but not in the short term). This implies either the gold price to rally or the rand to weaken, or both.

Rand gold price: Bullish break-out.

Recommendation: Buy after a correction.

Trend: Up in the short and medium term but overbought.

(Weekly)

- The rand gold price has broken out above long-term resistance (line 2). Lines 1 and 2 form a massive broadening formation. The price has almost reached its first target based on a break-out of pattern 3-4 (a broadening formation as well).

- Its weekly stochastic oscillator (on top) is overbought and giving a negative divergence there. This is a warning of a correction to come before heading up again.

- Because it almost reached its short-term target (R14 900 an ounce), rather wait for a correction to R14 000 (near line 4) to buy. It can be traded directly via Newgold on the JSE.

- Its larger target now (target 2) is R16 900, based on the height of pattern 1-2 projected up. This is a target for the medium term and beyond.

- Place your stop-loss as a weekly (that is, Friday) close below R13 200 an ounce when buying after the correction.

* Colin Abrams is an independent technical analyst. To subscribe to more recommendations by the author, or attend his courses, please go to www.themarket.co.za.


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