The chart below clearly shows one thing: long-term trends often last many years. The bear market that started in 1988 ended in 1993. The up-swing that followed lasted from 1993 until 1996 and culminated in what may be called a false break-out. Then another bear-market unfolded taking the gold price down to

$ 250 over a period of almost four years.

Then came the spike in the gold price as a consequence of the central banks’ announcement that they would be limiting their gold-sales.

The 1999 bottom was tested again at the beginning of 2001. At that time, when few believed that any money should be put into precious metals, the present bull market started; a bull market we deem is still in its infancy.

The gold price hit $ 430.50 on January 5, 2004, and has been consolidating this price surge, which in our opinion, is a healthy development in a bull market.

But let us first examine the weekly long-term-trend.

The long-term picture

When a market reaches a heavily overbought condition, the end consequence is often a heavily oversold condition. Both conditions, overbought and oversold, are exceptions to the trend, so we can disregard them when estimating the long-term tendency.

“Looking at the long-term trend that began in March 2001, we can clearly observe that the gold price has once again exceeded the upper-trend line, just as it did in March of this year. Given this, we conclude that the market is overbought and expect a correction down to the $ 360-level”, we wrote on December 10 of last year.

In early January, the market jumped to $ 430.00, and from there the consolidation set in and has not yet ended. Therefore, we are still faced with the question as to where the consolidation will finally end.

At this junction, technical analysis is probably of little help, as external factors, which you find in no chart, can propel the gold price to much higher levels or bring it down again towards the $ 350 level. Whatever happens short-term should only concern the short-term speculator, but not those who are convinced that we shall see much higher gold prices in a not-too-distant future.

The medium-term picture

Back in February, the gold price briefly touched $ 388.90, a quick spike probably caused by some short covering.

We mentioned before that an overreaction to the up-side is often followed by an overreaction to the down-side. This is what happened when the gold price fell to $ 320 in April or by 18%.

The gold price approached the $ 380 level again in June, but was unable to push higher. An orderly correction followed which stopped at $ 340, some 10%.

This time the correction from high to low was also 10% but from a less overbought level for which reason we would argue that it has likely run its course this time.

We would also wish to point to the fact that other precious metals, silver, platinum and palladium have reached new highs during the past week suggesting that, at present. Gold is rather the exception to the rule.

The short-term picture

The short-term picture does not look very promising as the short-term trend is down. Short-term trends should, however never be analyzed separately from the long-term picture, since the short-term reflects short-term moods which can change overnight, simply reflecting the action of short-term traders who only wish to cash in on a quick profit.

At the same time, while the short-term trend is down, the price has been holding well above the

$ 390-level for more than one month, an encouraging development if not conclusive.

Are US markets fundamentally cheap?

Historically, a FAIR valuation of US markets has indicated a dividend yield of 4% to 5%. Dividend yields at present, however, are still at less than 2%. Historically cheap US markets yield upwards of 6%. The answer to the above question is therefore simple: NO! As pessimism spreads, gold will rise, the dollar will fall, as will the major US indexes .

The chart of  the Dow Jones Industrial Average also suggests that the Bear Market Rally that started in March of last year and has many taken by surprise, seems drawing to its inevitable end. And while it is not yet known who caused the terror in Madrid, 911 days after 9-11, it is a painful reminder that we are far from victory in this distressful matter.

The following recommendations were valid at the time of writing, viz. at

and may no longer be pertinent at the time of reading.

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Yours sincerely,

Peter Zihlmann

March 17, 2004

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Disclosure: The author has not been paid to write this article, nor has he

received any other inducement to do so. The author is a shareholder in the

company and will benefit from any increase in the company’s share price.

Disclaimer: The author’s objective in writing this article is to invoke an

interest on the part of potential investors in this stock to the point where

they are encouraged to conduct their own further diligent research. Neither

the information, nor the opinions expressed should be construed as a

solicitation to buy or sell this stock. Investors are recommended to obtain

the advice of a qualified investment advisor before entering into any transactions in the stock.

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-- Posted Wednesday, 17 March 2004 | Digg This Article