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.