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Gold Market Update

Clive Maund
7 October, 2004

If my main purpose in life was to suppress the price of gold, and I had an unlimited supply of fiat money and a hotline to the bullion banks, I wouldn't be going on vacation right now.

After being smashed down in April and May, gold has crept laboriously back up to within sniffing distance of the double-top highs of January and March-April. This is now a key resistance level, a "Maginot Line," and anyone who does not want to see gold go up, for whatever reason, will not want to see this level fall.

We can clearly see the significance of this resistance level on the 1-year chart. Since the April-May plunge, gold has been in a gentle, but quite clearly defined intermediate uptrend (within the larger uptrend shown on the 3-year chart), the upper boundary of which is now advancing into the resistance zone. At first sight it would appear to be unlikely that gold can mount a serious challenge to this resistance from its current position, because to do so it would have to rise beyond its upper intermediate trendline, and would thus be overbought to start with. But if we view all the action since the May low as "base building," bearing in mind that, as already stated above, the intermediate uptrend shown is gentle, then it becomes clear that the rate of rise could accelerate dramatically from here, especially once the price gets above the strong resistance zone. In this event the trend channel shown will become obsolete, and a new one would have to be drawn as the price accelerates away from the $430 area.

There is evidence to support the view that gold is going to have a crack at overcoming the resistance soon; the uptrend from May is accelerating, evidenced by the fact that the early September low was some way above the lower trendline, this means that the price is likely to overrun the upper trendline on this advance.

Silver has just broken out above its key $7 resistance level and is in position to advance rapidly, albeit perhaps after a brief retreat back below $7. Another supporting factor will be if copper breaks out to a new high, which it is within a whisker of doing. The main point is that if the action from May to the present is basing action, then we should witness an accelerating advance.

There is considerable apprehension amongst gold and precious metal stock investors that the "Cabal," the shady characters whose mission it is to stop gold going up, are going to "throw a spanner in the works" the moment gold looks set to breakout above $430. The way I look at it is this; "they" can probably succeed in continuing to cap gold for a while, provided the dollar holds up, but if the dollar caves in - and remember, the dollar is not now oversold, and can therefore fall a long way - they've got no chance, and buying the dollar in order to stop gold going up would be a spectacularly expensive way of going about capping gold - the gold market is tiny compared to the massive dollar market. So to put it bluntly and simply, if there is anyone out there trying to stop gold going up, they've got no chance if the dollar breaks sharply below 87 on the index, which I view as highly likely the moment the US elections are over, because whichever side of the duopoly wins, you've got 4 years to put up with them even if the dollar goes through the floor.

Before closing, a brief look at our 3-year chart shows that the long-term uptrend is intact, with a breakout, one way or the other, inevitable within a few months maximum. While a breakdown from this uptrend would obviously be a bearish development, a powerful upside break above $430 looks to be the much more likely scenario.

7 October, 2004
Clive Maund

Clive Maund is an English technical analyst, holding a diploma from the Society of Technical Analysts, Cambridge and living in southern Bavaria, Germany where he trades US markets.

Visit his subscription website at clivemaund.com.[You can subscribe here].

No responsibility can be accepted for losses that may result as a consequence of trading on the basis of this analysis.

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