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Gold broke through the important $330 level
in mid-December and it hasn’t looked back since. It’s currently
at a six year high over $350, it’s risen more than $27 in
the past month and the bull market is now in a stronger phase
for the first time since 1980.
Over the past month geopolitical tensions have
increased tremendously. War with Iraq seems to be a certainty,
probably this month or next, which was one of the reasons
why gold surged higher.
GOLD & DOLLAR: Move opposite...
Gold and the Dollar also move opposite. If there
was ever a doubt about this relationship, you saw it first
hand this past month. It wasn’t a coincidence that gold entered
a stronger phase of the bull market while the Dollar fell
to a three year low as it started the second leg of its bear
market (see Chart 1).
The Dollar’s continuing deterioration will keep
upward pressure on gold as well. Low interest rates, soaring
deficits, slumping stocks, a slowing economy and an inflationary
monetary policy are also working against the Dollar and they’re
a solid base for gold.
... and more fuel for gold
But geopolitical tensions like the probable
war in Iraq, the North Korean nuclear threat, another possible
terror attack and the crisis in Israel will fuel the gold
rise too. Plus, gold has become a safe haven and the more
it rises, the more it’ll become an even larger safe haven.
You can see this in the sales of gold eagle coins. Since July,
there’s been more than triple the coin sales compared to the
first six months.
Gold’s stepping stones in place
As you know, we’ve been taking gold’s bull market
one step at a time, so let’s review the steps. The first important
trend identifier is the 65-week moving average. This simple
tool has identified the major trend since the 1970s. When
gold is above it, the major trend is up and when gold is below
the 65-week moving average, the major trend is down. Gold
rose above this average a year ago August where it has stayed
since then. This means the major trend is up as long as gold
stays above $307.
Chart 2 shows the gold price since 1981. The
horizontal lines mark the major resistance levels in gold
over the last 20+ years and these are now the stepping stones
on the upside. Gold and its indicator (not shown) move in
a 1-4 movement. This doesn’t happen often since there’s only
been three full 1-4 cycles since 1980. The fourth one started
in February, 2001. The #1 rises are the best rises in gold’s
cycle, which are followed by the worst declines (#2). The
#3 rises tend to be short while the #4 declines tend to fall
to new lows for the cycle.
The current #1 rise is alive and well. It’s
almost two years old and last month it flexed its muscles.
As you know, gold’s been resisting at its 1999 #3 peak since
June. This $330 level is important because with gold now solidly
above it, it means gold’s broken through prior resistance,
which it hasn’t been able to do since 1980. This is impressive
action for the yellow metal since it’s showing strength unlike
any time over the last 23 years.
UPSIDE POTENTIAL & TARGETS
Many have been asking for gold’s upside potential.
The stepping stones are our targets and now that the 1999
high has been broken, our next target is the 1996 high near
$415 (see the 1996 #1 peak on Chart 2). This is a level that
can be attained this year. But first, the current rise is
nearing our target in time and price near $360. This means
we’ll likely soon see a downward correction, and then gold
near $400 possibly during the next rise in a few months.
Once the $415 level is surpassed, the bull market
will strengthen even more and the 1987 high near $500 will
then be the next target (see Chart 2). If this occurs, the
gold market would be hot because the current #1 rise would
result in the best percentage rise in gold since the surge
of 1980. And if gold breaks above $510, it would enter an
explosive phase of the bull market where it could then surge
to the $850 peak and beyond.
All of this can be attained as long as the bull
market remains in process. And if it does, the upside for
gold is wide open.
WHAT TO WATCH FOR
It’s important to keep in mind that the bull
market will remain underway as long as gold stays above its
rising 65-week moving average at $307, and the stronger phase
is in process above $330. The current rise could now end at
any time or on the long side in February. Keep an eye on $345
as a close below it means the current rise is over and a normal
downward correction will be underway.
WHAT ABOUT THE YEAR AHEAD?
Gold and gold shares were the big winners in
2002. Gold shares ended the year up 41% and gold rose over
22%. On the other hand, stocks were down on average 25% both
in the U.S. and abroad.
The pendulum is now swinging gold’s way. Gold’s
been talked down and held back for over 20 years, but times
are changing.
We believe these major trends will continue
as we go into 2003 and they’ll probably continue throughout
the year. So we’re on the right side of the markets as the
new year begins. We look forward to a good 2003 and we wish
you the very best in the new year ahead.
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