Advancements in medicine, physics, mathematics, psychology, agriculture, etc. have come about as a result of the search for understanding the unknown by pioneering men and women. The desire to understand and interpret the financial markets is also quite evident by the numerous insightful articles published by highly intellectual individuals on a host of web sites, such as GOLD-EAGLE. If the energy expended in this quest could be collected and harnessed, it would likely free the world of the need for fossil fuels. This article is written with the goal to provoke thought and to assist in the understanding of market movements.

The greatest known market technician indubitably must be W.D. Gann. From what I have read his methods were extraordinary. He predicted price and time movements through mathematical number models, such as his Gann Wheel Market Forecaster ( a circular increasing number array). This Gann wheel, I have found, can be looked upon as a speedometer where the degrees, converted to radians, can be used to predict the velocity of a move, up or down, much like his 1, 2, 4 to 1 trend lines. The man was a pure genius. He also once briefly mentioned that stock and commodity price movements vibrate around their center of gravity. Now the center of gravity of an index, stock, or commodity is difficult to determine, especially since it is in motion. In other words, it moves over time. This motion, as you will see, causes a slight deviation from actual vs. theoretical data. The nearer the time frame under consideration the greater the deviation may be. We will analyze two markets, the Dow Jones Industrials and gold, as per their center of gravity. Other methods will also be introduced.

Why these two markets? As the very insightful commentaries published on sites such as Prudent Bear, Comstock Funds, etc. remind their readers, we are at a crossroads. These two markets are opposites and therefore offer opportunity in most economic conditions. I am reminded of a book published in 1875 by an Ohio farmer Samuel Benner called "Benner's Prophecies of Future Ups and Downs of Prices". His observations as to the existence of an 18 year cycle have predicted panics, based on the year 1873, within two years up to the latest 1982 panic. Another time frame is due soon.

Before we examine the two markets the following postulate must be made.

"The time frame in years from the center of gravity to either the high or low point in the past or future will always be a Fibonacci number if price movements are not in an extreme volatile state." Extreme volatility shifts the center of gravity and therefore time.

DOW JONES INDUSTRIALS

The question first and foremost is: Have we seen the top in the Dow Jones Industrials?

Before we look at the conclusions derived from a center of gravity perspective, one other pertinent comment. Each dimensional size of an object has a different center of gravity. An analogy would be the difference in the center of gravity between a dingy on a yacht and the yacht itself. The Dow Jones or gold each have an infinite number of gravity centers, depending on the time interval. We will only look at yearly intervals.

1. In June of 1932 the DJI reached a low of 40.6, an extremely undervalued valuation. The price reached 34 years later at 1001 in February 1966 marked its center of gravity. This is the pivotal point from which the future peak is projected, namely early year 2000. The time frame, given a slight deviation as previously explained, is minus 34 years and plus 34 years, with 34 being a Fibonacci number.

2. A secondary confirming center of gravity is the peak of August 1987. The instability or unbalance of an extreme low in December 1974 and the high in Janauar 2000 is 13 years to the past and 13 years forward from 1987. The eight month discrepancy from the August 1987 high to the end of 1999 suggests a rapid shift of the center is underway due to market volatility. Again 13 is a Fibonacci number. This rapid shift leaves open the possibility of a final high in 2001.

Should the Dow Jones Industrials break out to new highs, which will become clear within a month or two, then a high can be calculated using the multiple of six. For example:

* The low of 63.9 in 1921 multiplied by 6 suggested a high of 383 (interday actual high was 386).

* The low of 160.6 in 1949 times 6 would have suggested a 964 high (actual 1001).

* The low of 2340 in October 1990 times 5 gave us the recent high of 11750. Multiplied by 6 would project a high of 14040. An interesting observation is that the low of 40.6 in 1932 when divided into the 1966 high of 1001 and then multiplied by the low of 570 in December 1974 gives a target of 14053.

GOLD

At the end of September 1980 gold made a recovery high of $711 London PM fixing, 36 weeks from the high on January .21, 1980. Note the interesting Fibonacci time intervals from that recovery high, actual weeks in parenthesis.

June 1982 Low - 89 (91)
Feb. 1985 Low - 233 (231)
Dec. 1987 High - 377 (377)
Sept. 1999 Low - 987 (988)

Without going into a discussion on the importance of square time numbers, as shown by the low in September 1999 of 1,024 weeks from the January 1980 peak (32 x 32), let us just look at the big picture. The gold market tends to bottom during the months of September to February. The center of gravity analysis suggests December to February as likely, and the square of weeks indicates mid December. Gold's center of gravity currently is at the $500 high reached in December of 1987. It is now nearly in equilibrium with the past high 13 years before in December of 1974, and the future low 13 years forward to the end of the year 2000. Around the middle of December 2000, 1,089 weeks will have elapsed from the 1980 high (33 x 33). CONSEQUENTLY, we should be very close to the beginning of a major bull market after 21 years of falling prices.

DISCLAIMER

The above is for educational purposes only and not investment advice.

Gerhard Herbst
November 20, 2000

herbst@prodigy.net