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Gold trend has reversedLouis Paquette Partial retracement expected in July / August is the time to get positioned Long time readers know I am not a perennial market cheerleader - that I provide the most unbiased views I can whether they are positive or negative. Like back in December of 2000, when I was forced to tell subscribers that nothing looked good out there - except maybe for the senior unhedged gold stocks. Or like in late 2003 to early 2004 when the gold sector was hopelessly overbought and rolling over, the victim of too much fun the previous three years and I had no choice but to call a "Time Out!" in our November 2003 Issue - reluctantly cancelling the "bargain hunting season" - even if I knew it was likely the last thing subscribers wanted to hear. Today however, I am pleased to say that I am more optimistic about the intermediate term prospects for gold stocks than I have been since gold broke out over key resistance at $330 (EGSNEWS ALERT December 12, 2002 - "Thar she blows!") and for the first time since the HUI peaked in late-2003, for a couple of reasons. HUI vs. Gold For one, all the price action since our last issue seems to be confirming that mid-May was the seasonal low. For instance, the stocks as represented by the HUI have been out performing the gold price by a factor of 2.9 times (+17.6% vs. 6% for gold). This continued pattern of out performance indicates the seasonal trend has now turned bullish. Once the seasonal trend turns, after a partial retracement possibly lasting into August on the seasonal gold chart, we can expect the path of resistance to remain north until the seasonal highs are reached around yearend. Gold vs. U.S. Dollar The longer term looks bright as well. For one thing, the long-awaited disconnect between Gold and the US Dollar may be finally under way. Did you know that from mid-May to July 1st, the US Dollar Index was up 5.8%, yet Gold was also up 6% during the same period? This is no mere one-off, but a full month and a half where for the first time in recent memory, gold performed well regardless of what the Greenback is doing. Gold vs. Major Currencies Not only that, gold is beginning to look good against all currencies. I urge you to Kitco.com's new Gold/Currency Charts and you will see how Gold has now been slowly trending ever so slightly higher in all the other major currencies (except the loonie) over the past 12 months. This is how it began with the Gold/US Dollar. A slow rising bullish trend, until some tipping point was reached. For me, this was when the Gold price broke decisively into new multi-year highs above $330 in December 2002. I believe looking back, this disconnect with the US Dollar and France's vote against the Euro constitution and resulting fallout on the Euro currency may be seen as the tipping point for the next surge in gold. Longer term: HUI - Elliott Wave III Starting? There's some technical support for this scenario in the form of all things, EWT (Elliott Wave Theory). A large Elliott cycle appears to be taking shape within the HUI chart and it may have just turned north.  The move by the HUI from the final bear market lows around 40 in late-2000 to the highs just under 260 in November 2003 could be Wave I. And the 18-month consolidation from the highs to the lows in mid-May 2005 could be Wave II. IF this were to be the case and Wave III is just getting under way, gold bugs are in for a hell of a ride over the next few years, let alone five or six months. Wave III is often the largest of the upward trending waves, typically 1.61 times the magnitude of Wave-1, often accompanied by a gap up mid way through it. The Wave-II consolidation since Nov-03 fits this scenario nicely. It has taken the classic form of an "A-B-C" correction. An initial drop (A) followed by a partial retracement (B) and finally a second down wave (C), which often takes the chart to new lows (lower than the low of A-wave). Note that in this case, the partial retracement in the HUI from the May-2004 low to the seasonal high in November 2004 around 240 was very strong, well over 50%. Then note how C-Wave fails to make new lows, but finds support and bounces vigorously (nearly 20%) off the previous year lows. Both of these are signs of above average strength. IF these two large cycles - the annual seasonal cycle and the larger, multi-year Elliott Wave pattern that technical types are bantering around lately, are indeed bottoming out together, this could make for a powerful bullish move. With what's happening with global currencies these days, soaring oil prices, with the background of a massive credit/real estate bubble, along with positive fundamentals and seasonality at this juncture, for new picks this Issue, I've screened out everything but pure precious metals juniors, stacking the deck with three of them. For readers who prefer it narrowed down to just one or two new picks - no worries. These are three distinctly different situations, spanning the full range from lower-risk, to the more exotic, from early stage grassroots, to very near production and cash flow. Don't let my talk of coinciding bullish wave patterns convince you to run out and do anything rash. The seasonal trend change coming up, I am pretty confident in. The other part should be considered theory. After all some have been using EWT to incorrectly claim the gold bull was bogus. What you may not want to do however, is to wait for the seasonal cycle uptrend to play out and prove itself - and then jump on board and expect to continue getting those kinds of short term gains going forward again, just as the seasonal trend is about to turn south.
Please note the author is not
a registered securities advisor. DISCLAIMER Copyright ©2005 EGS 321gold Inc |
Louis Paquette