My outlook for gold has been quite bullish but nonetheless mindful of the possibility that a major trend reversal is imminent. For this reasons, I’ve asked you to focus on a 463.10 rally target in Comex February gold, just above last week’s closing high at 458.20. But is it possible the futures will blow right past my number, even as the dollar index smashes through an equally important bearish target I’ve flagged at 77.60? My friend John Mackenzie evidently thinks so, and he has kindly allowed me to share with you what he calls his “ramblings” on the subject.

The last time John “rambled” was in an e-mail message warning of an impending collapse in gold. Just a month earlier he had been one of the most bullish gold bugs I knew. But by late March, mere days before precious-metal stocks were to begin a devastating plunge, he had finished exiting the last of his once-substantial holdings in mining shares. Now he is once again quite bullish, but with an important caveat. Here is the message I received from him Monday morning:

…Within 72 Hours

“Gold is preparing to begin a serious reversal over the next 72 hours. The rise in price will be astonishing and will leave many a Gold Bull on the sidelines, only to chase an ever appreciating parabolic rise in the Price of Gold & the Mining Equities. Those that did not hold fast will be seeking medication.

“Be forewarned. Any weakness over the next few days should be used as an opportunity to purchase positions and be fully invested in Gold/Gold Shares. We are preparing to move much higher and rather quickly. United States Dollar Imperialism is ending, and quickly. I fully expect Gold to complete its detachment from the Federal Reserve Note over the next two months.

Beware of Pullback

“Gold will not begin its Second Phase until the Price of Gold has crossed the 50% retracement [i.e., $556-$558] of the entire bear market. Do not be fooled into thinking this is so -- it is likely two years away from breaching this milestone for good. It very well may begin to test this level in short order, but fail and begin a decline back to the breakout area of $433. It would be advisable to recognize profits on this next assault at the 50% retracement level, and quickly. There will be a very large second-order correction in my opinion, with the breakout level being back tested for 18 to 20 months.

“Were FOREX to be halted, whither the price of Gold? Price signals could be removed from ‘markets’ around the globe.

Our Central Bankers have yet to meet a Bubble they did not adore, as it simply serves to postpone the Day of Reckoning. Attempts at HYPERINFLATION will cave in over the coming year and throughout 2005 as our Nation’s Stock comes into question far beyond relative valuations to mindless FOREX games and hapless Central Pranking.  June to December of 2005 will remove any and all veneer left upon the carcass that is the Credit Bubble Economy.

Grab 6% Mortgage

“The Ten Year Note is beginning to resemble a Zombie that’s shed a good deal of dead headedness and is quite likely in the formative stages of a very large reversal. Now would be an excellent time to lock in a fixed rate mortgage vehicle under 6%.

“Crude Oil is a very good long trade here as refiners have made the switch to heating oil and have stockpiled enough unleaded to manage gasoline’s price prior to the Inauguration. The real issue lies within the Kingdom of Saud; Ghawar is being rapidly depleted of its Economic Oil reserves. The recent cuts in production were no accident, nor an attempt to stage manage the price of crude as the Media have suggested, but rather the world’s largest Oil Field running out of Cheap and available Economic Oil at a rate far more rapid than assumed by most experts. What this means to the Global Economy should be obvious, in particular to the United States, the world’s largest abuser of Energy.

Oil Equation Changing

“Our entire Economy throughout the 20th Century was based upon cheap and available Crude Oil. This is going to change and dramatically so. 2005 is going to be hell on earth for Americans, 2006 far worse. It is best to consider what this means and if you have not begun to prepare for the coming Financial Disaster, it would be advisable to begin so immediately.

“Do not be surprised by the lack of convention in most markets as we are deeply within uncharted waters and likely to experience immense volatility throughout the coming year. Do sell the Public’s entry into the Gold market or face untold losses. Owning the Physical Metals is again, the BEST investment vehicle for preserving hard earned savings, regardless of PRICE. Its VALUE is timeless and will, once again, serve as the ultimate hedge against uncertainty for the coming decades.

Bullion Versus Shares

I asked John about the widening discrepancy favoring physical metal over gold shares in recent months. His reply:

“Gold shares appear to be suffering from several maladies: 1) fear of potential share-downdraft with broad markets, based upon historical precedents. Wholly invalid in my view; 2) paper overhang of GLD and flurry of offerings? It has been absorbed; 3) preference of metal over paper, physical demand is up monstrously this year? As I said, it will takes years and years for paper shackles to be broken; 4) bonds and ‘advisor’ correlations to interest rates? Most of them are dead wrong. They assume a dollar retracement and simultaneous hike in bills, notes and bonds will cause/effect outflows from this sector. I expect the complete and total opposite. I do expect to see a wholesale currency detachment.

Gold Skeptics Abound

“Gold is setting up to surprise nearly everyone I’ve spoken to. The bearishness and skepticism are healthy. Look for gold to run incredibly hard here as the horizon comes much more clear and into view. Gold is about uncertainty, that is all. A true gold market cares very little about anything else -- it has been that way time and again throughout history. This time will be no different, sans the scope and scale, which will be geometric in its proportions.

“We are going to witness a dislocation whereby FOREX, in absence, curtails signals for the metals. It might last a few years, but then we will begin a Gold Bull Market like none before. I'd be thinking in terms of five digits and not four by the time it is complete.”

It’s always wise to reserve some skepticism for such dramatic forecasts.  I should also mention that nothing in the technical picture I am seeing suggests a monster rally lies just ahead for gold. The most I could say with confidence is that a move above 463.10, basis Comex February gold, would be a very bullish sign. In any event, inside today’s Rick’s Picks I’ve included a strategy for leveraging the scenario that John foresees. It involves the use of equity call options in certain stocks, with the goal of holding risk to a minimum if we are wrong.  

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Information and commentary contained herein comes from sources believed to be reliable, but this cannot be guaranteed. Past performance should not be construed as an indicator of future results, so let the buyer beware. Rick's Picks does not provide investment advice to individuals, nor act as an investment advisor, nor individually advocate the purchase or sale of any security or investment. From time to time, its editor may hold positions in issues referred to in this service, and he may alter or augment them at any time. Investments recommended herein should be made only after consulting with your investment advisor, and only after reviewing the prospectus or financial statements of the company. Rick's Picks reserves the right to use e-mail endorsements and/or profit claims from its subscribers for marketing purposes. All names will be kept anonymous and only subscribers’ initials will be used unless express written permission has been granted to the contrary. All Contents © 2004, Rick Ackerman. All Rights Reserved. www.rickackerman.com