| Gold is a special market in more ways than one.
Gold and gold shares are starting a renewed rise right on
schedule. Gold is a cyclical market, which makes it easier
to follow compared to other markets. That's why we've been
taking this bull market one step at a time and so far the
steps are in place.
GOLD: A step by step bull market
 Going
back a moment to explain what we mean... gold reached an eight
year cycle low in February, 2001. That step is complete and
so far gold's been following the path it normally takes after
a cycle low. Gold, for instance, tends to rise for three to
five years afterward and gold turned bullish a year ago when
it rose above its 65-week moving average (see Chart 1A).
So this bull market still has a few years to go.
This average has also worked best over the years
in identifying the major trend. This means the major trend
is up and gold is going higher as long as it stays above the
moving average now at $294.
Within the major trend, however, gold has an
intermediate cycle that identifies medium-term highs and lows.
These are equally important to watch because it tells us the
ideal times to buy more and it helps to identify the strength
of the market (or the lack of strength).
It told us, for instance, that the downward
correction that began on June 4 was a normal correction in
the bull market. In fact, it was the first correction this
year. It also told us to start buying gold shares again in
early August because we were at an intermediate low.
GOLD $325: Next step
So far, so good. The steps are in place and
the next important hurdle for gold is breaking clearly above
$325. Once that happens, a more bullish phase of the bull
market will begin. This level is very important because it's
the 1999 high. Since 1980 the only decent gold rises, in 1985-87
and 1993-96, failed to rise above the previous peak. This
means if $325 is clearly broken, it'll be the first time since
1980 that gold has risen higher than the previous peak. This
is the next important step and gold is currently close to
that level.
Chart 1B shows gold's leading indicator,
which identifies the intermediate cycles. The As and Cs identify
gold peaks and the Bs and Ds show the bottoms. This is one
of our favorites because it's worked so well in identifying
intermediate moves within the major trend.
The gold decline that started on June 4th was
a D decline (see Chart 1A). Gold declined from a high
of $327.90 to a low of $302.50 on July 29, while the indicator
fell to a low area. The gold decline was moderate compared
to the strong rise this year. And the fact that gold held
above $300 during weakness showed great strength.
An intermediate A rise is now in process and
as long as gold stays above $315, it's strong within the A
rise. Gold essentially resisted at its 1999 high last June,
which makes it even more important to see if gold rises clearly
above this high. For a clean breakout, let's see if December
gold closes above $330.
Gold will gain bullish momentum above this level,
and it could then easily jump to $340 as the next medium-term
target before the current A rise is over. If the A rise accomplishes
this, then the major bull market will be strong and well on
its way as the steps continue to fall into place.
On a timing basis, the A rise could last until
November, which is the average time of previous A rises. It
should then have a normal downward correction, which will
provide another good buying opportunity around year end, before
the bull market again resumes its upward path to higher levels.
GOLD SHARES: Strong renewed rise
Gold shares are more volatile than gold. They
fell much more than gold in the D decline and they're generally
rising more than gold in this renewed A rise with several
shares reaching new highs for the year.
Gold shares are a great investment to just buy
and hold for the entire ride. Some people prefer selling at
intermediate peaks and buying near the lows, which is fine
if you're prepared to stay on top of the market.
Besides our gold indicator, the XAU gold share
index and its leading indicators also serve well in telling
us when a rise is overheated and when a low area is at hand.
 Chart
2A shows the XAU bouncing up from its major uptrend, while
the leading indicator is bottoming in an oversold area (see
Chart 2B). This is great action because it shows that
the renewed rise has strength and gold shares have room to
move up further in a sharp rise before they're overbought.
XAU is back above its 65-week moving average, now at 63 and
it's poised to enter the strong side of the rising channel.
In other words, gold shares are still oversold and they have
good potential during the current A gold rise.
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