-- Posted Friday, 16 June 2006 | Digg This Article
Your independent Swiss asset manager THE TIMELESS PRECIOUS METEAL FUND
Gold/Ounces in US$ |
Buy Date | Amount | Buy Price | Total (USD) | Price Today | Value Today |
November 7, 2002 | 100/oz. | 318.90 | 100/oz. | | |
Total | 100/oz. | 318.90 | 100/oz. | 552.50 | 55'250.00 |
Profit | | | | | 23'360.00 |
Profit (in %) | | | | | 73.0% |
OUR LONG-TERM RECOMMENDATION | | | BUY | |
OUR SHORT-TERM RECOMMENDATION | | | BUY | |
1980 to 2005: From bear to bull: the multi-year trends and the long-term picture
The chart above 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 three years 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 (1999) 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 has still a long way to go.
In January 2006, the gold price started to accelerate and reached levels few believed possible only a few months ago. Too much enthusiasm was building up and the question was: “How much is too much?” - In the meantime, the long waited for correction is upon us. Now the question is: “How low will we go?”
The medium-term picture
From the above presentation, it is easy to see that there have been many buying opportunities since this bull market started in 2001, along with some excellent prospects for selling. Each time the gold price fell back to or below the EMA 50 (green line) we would have been well advised if we had bought.
On the other side, taking profit would have worked well each time the gold price moved to a level of close to 20% above the EMA 50 – except at the end of 2005 where we would have missed the price surge from 525 to 720 (+37%).
The big question facing us at present, as the gold price has fallen back to the EMA 50: “Should we buy now or will the gold price fall back into the old trend channel?”
At this junction, it can be helpful to see how unhedged gold stocks fared compared to gold:
The HUI-Gold Bugs Index has surrendered about 30% since it reached a high of 401.69 points in May. The correction that followed corresponds to the one we went through at the beginning of 2004 (see circles). We conclude that this level is a BUY-level and would at the same time confirm our opinion that the correction of the gold price has most likely run its course.
The short-term picture
Technical short-term indicators signal a over-sold situation which we have not seen for many months. If the past offers a clue as to what this means, we may be in for an upwards movement which few expect at this stage.
Below is the RSI on gold:
The US-Dollar
From April of last year to the present, the USD-Index went through a reversal pattern with a nice head-and-shoulder formation.
The break-down from this reversal pattern gave way to a consolidation which – when concluded – should lead to a test of the 80 point level or the low the Index reached at the end of 2004.
Should this support level break, the Index will likely move much lower.
The recommendations were valid at the time of writing, viz. at
and may no longer be pertinent at the time of reading.
Peter Zihlmann 
