Market Update
Bullish Move in Golds Delayed but Clearly in Sight

Contributed by Olaf Sztaba
NA-Marketletter
www.na-marketletter.com
Oct 13, 2006

The recent weakness in the gold sector has been disappointing and nerve-wracking for investors awaiting a seasonal rally. Some analysts have brought up the prospect of a lengthy decline or even a bear market, pointing to many stocks that are on the verge of a breakdown. These negative settings have created a condition we haven't seen for a while - that is, FEAR. The comeback of this "bear-killing" element is not the only comforting evidence of the "corrective" nature of the latest sell-off.

Between May 2005 and May 2006 the gold sector experienced a sharp rally during which the HUI doubled (A-B). This "explosion" of demand for Golds triggered a correction which retraced about one-half of the entire move (C). The proximity of an important support zone around 260-275 and a technical phenomena -- "ceiling becomes floor" -- suggest the correction may have run its course and support should come in close to the current levels (please see chart above).

From the inception of this bull market, Gold has been trading within a well-defined rising trend channel. In December 2005 Gold had a breakout above the upper line of this channel (A). As a result, the yellow metal rallied away from this line until it reached a high of $725 in May, 2006 (B). Since then, Gold has been pulling back toward the upper line of the channel, currently around $550 (C), creating a bullish formation called a "symmetrical triangle" (please see chart above). Since this continuation pattern usually resolves in the direction of the trend preceding the formation of a triangle, we expect the next move to be upwards.

The recent declines have created a lot of confusion and disappointment for market participants -- the first harbinger of better days. Technically, Gold and Gold stocks still remain within a bullish framework. A resolution should come shortly.

Oct 12, 2006
Contributed by Olaf Sztaba
Email: osztaba@na-marketletter.com
Website: www.na-marketletter.com

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