The dollar/rand chart appears to be close to a major trend change based on the monthly MACD oscillator. The monthly time frame of this indicator is usually a superb indication of major trend change. The South African Rand has been very strong in recent years and the SA miners have suffered because of it. Many of them tried to rally when gold was hitting new 52 week highs.
Major trend change coming?
They did ok, but not nearly as good as gold stocks based in the United States and other countries. The question now is whether or not we are on the verge of a major trend change in the currency and therefore also possibly in the SA gold mining stocks themselves. I believe this could be the case although there is still plenty more price work that needs to be done. The monthly MACD is usually a pretty good indicator of major shifts from bear to bull or bull to bear market. The dollar/rand chart you see to the left does show a possible near term crossover on the monthly MACD. The amazing thing is that the indicator itself has taken at least a whole year to base out before the crossover.
2 South African gold miners
Two South African gold stocks that come to mind are DRDGOLD and Gold Fields. DRDGOLD has been hit particularly hard by the strong currency and the stock chart clearly reflects this. It has been in a persistent downtrend for at least 1 full year and the downtrend has been on pretty hefty volume along the way as well. This one year long downtrend in DRDGOLD was actually a move that reflected the failure of a very large reverse head and shoulders pattern. Needless to say, the ‘news’ right now on DRDGOLD is pretty bad. They may have to shut down or consolidate many of their mines and they do not have the money to do it, or so it was said in some recent press releases.
From the ‘about’ page on the DRDGOLD site:
Durban Roodepoort Deep, Limited (DRD) is a dynamic, driven and independent gold mining company. Established in 1895, it is based in South Africa, with substantial operations and the extensive, brownfields Argonaut Project in that country. In Papua New Guinea, DRD owns and operates the Tolukuma mine, and has a 20% interest in the Porgera mine. In Fiji, it has a 19.8% stake in Emperor Mines Limited. DRD’s mission is to remain independent and to focus on extending ore reserve life safely and profitably.
Gold is DRD’s main product, derived both from deep-level and opencast gold mining, and from the retreatment of surface material. The current operations have been amalgamated and acquired since 1997. Production has risen from under 100 000 ounces a year to 1.1 million ounces during this time. The company’s attributed mineral resource base stands at 66.5 million ounces, and attributed mineral reserves are 17.0 million ounces.
Right now, based on the look of the chart, we can see that the price decline has almost fully retraced the entire up move from .70 to 5.8, so .60 to .70 is a level of support and the one that must hold to keep any sort of positive prospects alive in 2005.
The price decline in DRDGOLD looks about as persistent as many of the declines we saw in tech stocks during the 2000 to 2003 bear market. Many of those companies went bankrupt and their stock prices reflected this condition. Things just got worse and worse. Will DRDGOLD suffer the same fate? The company has been around for over a hundred years and they have the gold in the ground, not just a bunch of paper asset promises. Still the condition of the company at this moment in time based on everything I have read is not spectacular. But rather than guessing about fundamental aspects, the best assessment that I can make is based on the price chart.
DRDGOLD is approaching price support at about .60 cents. Price needs to hold there if it does get there. And then, price eventually must be able to break above the long green downtrend line before this one can even be considered as a turn around candidate. Based on time, the middle of this year should offer more clues as to what the verdict is. The bottom line is the price of DRDGOLD will have to make a decision between the long red horizontal line and the long green downtrend line. Stay tuned. I will revisit this one if I see something more interesting developing.
Lastly here is a chart of Gold Fields. The most notable thing about this chart is the long period of sideways cause building. There is a clear trading range between 9 and 15. With cooperation from the rand currency, GFI could eventually make an attack on 15. For now though, nothing to get too excited about except that the bigger picture has some potential, especially a break with confirmed volume above 15.
Hopefully by the end of this week I will be able to take a good look at the price of gold itself and its long term price chart. Then after that, the price of silver. Gold stocks are very leveraged to the price of gold. But as you can see from the chart of DrdGold in this article, not all gold stocks always perform spectacularly just because the price of gold is going through the roof. Each gold stock is a unique situation.
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