1980 to 2006: 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: “Shall we test the low of $ 562 once more?”

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: “Will the gold price suffer one more sell-off before the up-trend is resumed?”

At this junction, it can be helpful to see how unhedged gold stocks fared compared to gold:

The HUI-Gold Bugs Index 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.”, we wrote in June when the gold price hit $ 562.

The low in the gold price as well as the one in the HUI-Index of 270 points has in fact been THE low, in our opinion, and a new, minor up-trend has since been established, giving us confidence that the next major movement will be UP.

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.”, we also wrote in June.

The Gold Bugs Index (Hui) Index did in fact increase by 67% while gold went up 11%. Those who expected and still anticipate a sharp correction down will likely be disappointed and will miss a great opportunity.

The US-Dollar

This following statement from our June Follow-up is still valid. The next leg down is in the marking:

“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 

www.pzim.com

www.timeless-gold.com

invest@pzim.ch

+41 44 268 51 11

+41 79 379 51 57

-- Posted Friday, 1 September 2006 | Digg This Article