Gold and Gold
Shares appear ready to soar
Dr Richard
Appel
October 22, 2004
Much has occurred
during the past few months that drew me to the conclusion that
gold and gold equities are approaching a period when they will
shortly resume their secular Bull Market advances. I have recognized
and discussed during this time my belief that the gold price
would be under pressure until after the upcoming presidential
election. Further, it has been my contention that no effort would
be spared to maintain orderly stock, bond and gold markets, in
order to help the incumbent remain in office.
During the past few years I noted some of the strange gold price
actions that occurred, the comparisons to which I had not witnessed
across my nearly forty years of studying the gold and gold equities
markets. Importantly, some of these unusual occurrences became
quite commonplace in the last two months. After considering their
consequences I am compelled to believe that sharply higher gold
and gold share prices are likely awaiting us just around the
corner.
It is my conviction that our leaders desire to control an orderly
gold price rise as its secular Bull Market unfolds. They are
not so much concerned if gold moves higher, but how its advances
play out. They realize that gold will advance as a result of
their actions, but they desire to prevent the public from recognizing
that fact for as long as possible.
For new readers, the reason that politicians shun gold is because
it acts as a barometer, whose price action announces how a government
is handling their country's fiscal and monetary affairs. When
a nation is acting prudently, their monetary unit is stable on
world markets, as are their domestic prices. Under such conditions,
the gold price tends to find a level from which it does not greatly
deviate.
When most countries maintained a gold standard, the last vestige
of which ended in 1971, the noble metal acted to limit a government's
propensity towards excessive monetary creation. Our leaders could
only issue dollars if they had sufficient gold with which to
redeem them. This forced those in power to live within their
means. They could not spend more than they acquired through taxation.
However, when a nation state acts irresponsibly and overspends
their tax receipts creating fiscal deficits, it drives its balance
of payments into negative territory, and both their currency's
worth on world markets and its local purchasing power falls.
During such times gold senses that the currency is destined to
decline, and will rise in anticipation of that event. This is
the real reason that gold, despite all of the negative rhetoric
that abounds, has been plodding higher in price. Do not forget
it has already risen 65% since it posted its 2001 bottom, with
neither the awareness nor participation of the general public.
Since the birth of civilization gold has been coveted by man.
It was one of the first forms of money and once recognized for
its eternal value, has been used by virtually all civilizations
as their primary form of money. If we were able to go back in
time for sixty or more years, you would find that it was the
prime, universal item used as money. The reason that it achieved
this lofty state, and maintained it for several millennia, was
due to the fact that its use forced politicians to be honest
regarding their issuance of paper money substitutes. Each time
a country deviated from exclusively using gold and issued paper
currency in its stead, their leaders began to debase their money
at an escalating pace. In all cases, this did not end until the
banknotes finally became worthless or nearly so. The only question
was how long it took. This is the reason behind the old French
adage that, "even the poorest French peasant hides gold
under his mattress". It was the result of the repeated currency
changes that France's citizens were forced to endure. These were
due to their government's destruction of each new currency that
they issued, to replace the earlier ones that they had inflated
to near worthlessness.
I digressed, again. A number of unusual events have repeatedly
occurred in the gold market for at least the past few years.
These go against all of my experience following the gold market,
as well as the laws of probability. First, gold has rarely traded
higher than $6 on any given day. Each time that it begins a session
sharply higher or trades to this level above its previous closing
price, a substantial amount of selling has appeared. Bill Murphy
(Gold Antitrust Action Committee, GATA.org) was the first person
to note these incredible recurring incidents. I sensed that something
was wrong for quite some time prior to his observation, but it
was his bringing my attention to it that first stopped me in
my tracks.
He rightly pointed out that this action has helped prevent drawing
undue attention to gold after it began its tortuous, rising,
bullish path in 2001. Second, often when the great metal was
either leaving a base or when it suddenly shot higher, it would
meet a wall of selling. The last several days are a good example.
Gold, after trading just over $6 above the prior day's close
last Friday, was not only stopped dead in its tracks, but it
moved sideways on Monday, only to be whacked on the following
day when it gapped down $6, before posting a $7 loss. In the
old days, when gold exhibited an explosive breakout or a sharp
run-up, the momentum typically followed through for at least
several days before a setback occurred. Now, almost like clockwork
whenever gold trades strongly higher selling mounts, and the
wind is immediately taken out of its sails.
Still another repetitive telltale trading pattern has been in
force. This time it involves the action of the HUI, the Amex
Gold Bugs Index. In the past the HUI and its precursor the XAU,
the Philadelphia Gold & Silver Index, often reversed direction
prior to the yellow metal at major turning points, during extended
gold advances or declines. Gold and the major producers normally
move in tandem. However, the past two or more years have seen
the HUI reverse course on any given day while gold was moving
strongly higher. With few exceptions, the following day gold
was hit for a substantial and often a prolonged string of losing
sessions. Some observers have commented that this action might
be the result of information leaking of a forthcoming attack
on gold. Whatever the reason, it has often signaled an impending
downdraft in gold's price.
I am bringing these extraordinary events to your attention because
the regularity of these strange and recurring anomalies have
greatly increased during the past few months. I believe that
the reason for this condition is the fact that buyers of the
yellow metal have become more aggressive, and thus the need to
overwhelm these gold positive forces has similarly risen. This,
in order to prevent a near-term, sharply higher price.
I realize that many readers are quite skeptical of my above claims
and statements. I am not asking you to believe me! However, I
suggest for your own sake, that you keep an open mind and try
to more closely follow the daily price movements of gold and
the HUI. It will be easy enough to draw your own conclusions.
But again, you must be open-minded and try to believe what you
see and ignore all of the negative gold rhetoric that fills the
airways. If I am correct, you will have sufficient time as gold's
great secular Bull Market unfolds, to confirm or refute my observations.
This will allow you to determine for yourself if either the cited
abnormal events are a coincidence, or if official actions or
statements occur at times when gold is soaring, and are used
to control its further advance.
In any event, I believe that anyone interested in the gold complex
should closely focus on the trading relationship between gold
and the HUI. Further, you should use caution whenever a deviation
from the norm such as I have described presents itself.
If you invest in gold I believe that it is imperative for you
to attempt to get a "feel" for the gold market. You
should at least follow the daily closing prices of gold and the
HUI and compare them with earlier ones. I believe that this is
best done in real terms, not in percentages. For example, if
gold posts consecutive closes of $420, $416, $418, $416.50, $417
and $415.50 you can sense that it is trending downward, albeit
slightly. However, if you work in percentage terms you
have no reference point from which to judge its underlying direction.
All that you know is that it was down 1%, up 0.5%, down 0.4%,
up 0.2% etc. You will lose all sense of its trend. If you use
this method in following all of your markets I believe that you
will develop a better grasp of their primary trends.
An advance in gold is the determining factor that will influence
the price movements of both the major producers and the junior
exploration companies. I believe that we are on the cusp of a
substantial increase in gold's price which will drive it to test
the $500 level. I do not know if the precious metal can muster
sufficient buying power to propel it to a new high prior to the
election. However, once the need to strenuously restrain its
advance no longer exists, I feel that it will break free of its
shackles and surprise most onlookers with a burst of strength.
I suspect that November will be attended with a new Bull Market
high. However, precise timing was never my forte, and we may
have longer to wait. Yet, given what appears to be a far greater
magnitude of effort necessary to constrain its price, it is likely
that it will literally evaporate when the last presidential vote
is cast.
My only potential caveat is that a number of gold enthusiasts
are predicting a similar scenario. This gives me some pause because
I prefer gold breakouts that are anticipated by as few investors
as possible. However, I doubt if all of we pundits combined have
as much influence as the worldwide audience that gold appears
to be finally attracting.
The gold producing companies, as viewed through the action of
the HUI, struck their lows in May. I believe that they will join
and make new highs along with gold. They have completed their
bases and await a breakout to new high levels before they will
really roar. The HUI is trading at 227.47 and its Bull Market
peak is 258.60. Additionally, it's 50 day moving average just
rose above its 200-day average. They are 208.38 and 207.23 respectively.
Thus the HUI's moving average study has turned bullish, which
is a major plus.
The junior sector is becoming quite interesting to me at present.
After sustaining substantial losses during the springtime they
bottomed around July. From their lows, most companies moved higher
and many of them developed defined upward trends. It appears
to me that most of the better companies have cleaned up their
markets; they have absorbed all of the cheap stock sold by the
weak holders. This being said, I believe that they, too, are
poised to move sharply higher along with gold. I will discuss
my ideas on this topic more fully in the Resource Market section.
The above
was excerpted from the November 2004 issue of Financial Insights
©2004.
October 22. 2004
Dr Richard
Appel
contact
website: Financial
Insights
I publish Financial
Insights. It is a monthly newsletter in which I discuss gold,
the financial markets, as well as various junior resource stocks
that I believe offer great price appreciation potential.
Please visit
my website www.financialinsights.org where you will be
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CAVEAT
I expect to
have positions in many of the stocks that I discuss in these
letters, and I will always disclose them to you. In essence,
I will be putting my money where my mouth is! However, if this
troubles you please avoid those that I own! I will attempt wherever
possible, to offer stocks that I believe will allow my subscribers
to participate without unduly affecting the stock price. It is
my desire for my subscribers to purchase their stock as cheaply
as possible. I would also suggest to beginning purchasers of
these stocks, the following: always place limit orders when making
purchases. If you don't, you run the risk of paying too much
because you may inadvertently and unnecessarily raise the price.
It may take a little patience, but in the long run you will save
yourself a significant sum of money. In order to have a chance
for success in this market, you must spread your risk among several
companies. To that end, you should divide your available risk
money into equal increments. These are all specula-tions!
Never invest any money in these stocks that you could not afford
to lose all of.
Please call
the companies regularly. They are controlling your investments.
FINANCIAL INSIGHTS
is written and published by Dr. Richard Appel and is made available
for informational purposes only. Dr. Appel pledges to disclose
if he directly or indirectly has a position in any of the securities
mentioned. He will make every effort to obtain information from
sources believed to be reliable, but its accuracy and completeness
cannot be guaranteed. Dr. Appel encourages your letters and emails,
but cannot respond personally. Be assured that all letters will
be read and considered for response in future letters. It is
in your best interest to contact any company in which you consider
investing, regarding their financial statements and corporate
information. Further, you should thoroughly research and consult
with a professional investment advisor before making any equity
investments. Use of any information contained herein is at the
risk of the reader without responsibility on our part. Past performance
does not guarantee future results. Dr. Appel does not purport
to offer personalized investment advice and is not a registered
investment advisor. The information herein may contain forward-looking
information within the meaning of Section 27A of the Securities
Act of 1933 and Section 21E of the Securities Exchange Act of
1934. In accordance with the safe harbor provisions of the Private
Securities Litigation Reform Act of 1995, the statements contained
herein that look forward in time, which include everything other
than historical information, involve risks and uncertainties
that may affect the company's actual results of operations. ©
2004 by Dr. Richard S. Appel. All rights are reserved. Parts
of the above may be reproduced in context, for inclusion in other
publications if the publisher's name and address are also included
for credit.
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321gold Inc
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