SA Gold Miners, USD:Rand and HUI


"Gold, silver miners to be best-performing asset class over coming years."

U.S. Dollar/SA Exchange Rate

The dollar/rand exchange rate is a very important rate for South African gold miners, as well as an important proxy for gold miners in general. Together with some other indicators, this ratio can tell us when gold miners are about to increase in real terms—that is, as compared to all other asset classes (including gold itself). When this happens, you really want to be in gold miners.

I can tell you that by all indication, especially my unique fractal analysis, we are entering such a time. This article is an attempt to illustrate why I think we are entering the time where gold (and silver) miners will be the best performing asset class over the next many years.

Following is a 5-year USD/rand chart.

USD/ZAR Spot 2006-2010

On the chart, I have highlighted two fractals (pattern 1 and 2). The period over which each of these patterns formed can also be viewed as a cycle. If my comparison of the two fractals is correct, then we are now at the beginning of a new cycle.

To show the similarity of the two patterns, I have marked similar points (1 to 4) on both patterns. We are now just about after point 4, and this would represent the bottom (5 November 2010). From here I expect the rate to rise, thus giving JSE gold miners leverage on the gold that they are selling.

Remember that a significant part of a JSE gold miner's cost is in rand or non-USD currency, whereas they get dollars for the gold that they sell. Of course, this is not the only condition needed for gold miners to prosper. Margin (revenue less cost) is king in any business and no different for gold miners. Their margins are most favorable when the gold price is rising in real terms.

The gold price is currently rising in real terms and should continue to do so for at least the next five months. In fact, I believe this increase in real terms will accelerate over the next five months due to the deflationary conditions that I expect from now to about April next year.

Expected Timing and Target for the USD/Rand Exchange Rate

Below are two charts that zoom into the last part of the two fractals presented on the first chart of this article. (The full analysis continues for subscribers and pay per article clients only.)

USD/ZAR Spot 5/10 - 11/10

USD/ZAR Spot 7/07 - 1/08

JSE Gold Index

Below is a chart of the JSE Gold Index that I did awhile back. I have highlighted two possible matching fractals. The commentary on the chart is self-explanatory. Since then, the index has broken upward out of the flag.

This chart and fractal analysis is consistent with my expectation for gold miners. It also illustrates why I think the rallies in gold miners will be explosive. The expected timing and price targets will be available to my premium subscribers and pay-per article clients.

JSE Gold Index

Below, I have done the same analysis for AngloGold (in South African rand). The note on the chart is also self-explanatory. The reason I have used AngloGold is to illustrate a fractal on the HUI, which you will see on the last chart. Again, the pennant/flag has broken out since then.

AngloGold (in South African rand)

On the last chart, I have the HUI compared to AngloGold (in U.S. dollars). Again, I have highlighted two possible fractals and marked points 5, 6 and 7 on both. For AngloGold, these points also correlate with points 5, 6 and 7 on the AngloGold (in South African rand) chart. The HUI has, of course, also broken out of the line drawn since then.

This analysis presents a similar view as to what should be expected for gold miners, as presented under the JSE Gold and U.S. dollar/South African rand analysis. The HUI should increase significantly in value over the next many years. The expected timing and price targets will be available to my premium subscribers and pay-per article clients.

HUI compared to AngloGold (in U.S. dollars)

Warm regards and God bless,

Please visit my blog and website for more of my work and premium service.

You can email any comments to [email protected].

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