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Gold - Entering Consolidation Phase

Technical observations of

Bob Hoye
Institutional Advisors
May 19, 2006

In bull markets the number of days in the consolidation phase in gold following a divergence in the Gold/Silver ratio has been quite consistent. The shortest has been 13 weekdays; however the norm has been from 19 to 23 days. We'll look for an end to the consolidation by June 13th.

From the high close, initially there is a 2 to 5 day decline (that now appears in place). This is followed by a recovery rally. The optimum date for the high of the bounce is May 19th +/- one day.

From that bounce a second less dramatic decline should complete the consolidation. Technically, the recent high generated an RSI(14) reading of 79. As the consolidation runs its course we should look for the RSI(14) to bottom out in the mid 40s.

Once prices have started the second declining phase and we are beyond May 30th (13 days from the top) then any close above the previous six days closes will signal that the consolidation has run its course. In all but one instance gold rallied to new highs following this type of setup. The exception was 1980. The 'six day' rule is designed to bypass that failure.

From the high close on May 11th prices have closed down 5% as of May 15th. The declines from the comparable examples have been 9%, 9%, 12%, 23% and 8%. Throwing out the anomaly of 23% in 1980 we can estimate good targeted support for gold over the next month of consolidation to be present between $633 and $662.

-Bob Hoye
Institutional Advisors


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