One of the tenets of Elliott Wave analysis is that the three upward thrusts of a long-term bull market will all occur for different reasons. The first bullion bull burst onto the world investment arena as the shackles of a $35 per ounce controlled global price were lifted and it found its true market value as an investment instrument. Then followed one of the largest bullion moves in history as the oil driven inflation crisis of the late 1970's rocketed gold to $850. It eventually topped out on January 16th 1980. For lovers of Fibonacci that is exactly 21 years ago!

My analysis indicates that gold, despite all the popular negativity, has bottomed out and formed a classic technical reversal pattern from January 2001. Let's take a look at the base patterns, as there are several.

1. On the weekly chart there is a three-year base pattern that has developed since 1998 and taken the form of a large Reverse Head and Shoulders pattern. This is a very bullish pattern. But in traditional chart analysis it will not become theoretically effective until it has penetrated the grey neckline at $ 330. However the upside count indicates a move to $395.
   
   
2. Is there any other indication of a more immediate end to the Reverse Head and Shoulders pattern? There certainly is. A massive Falling Wedge pattern has developed as the right shoulder of the overall base formation. This is a vicious format and usually leads to extremely sharp upmoves that wipe out the whole of the move inside the pattern in just one third of the time taken to form the pattern. This implies that, once the Falling Wedge is complete, the gold price should move sharply up to $320 within the next four months.
   
   
3. There is yet a further indication of a major trend reversal that is about to push the gold price upwards and complete both the above patterns. The daily chart below is a classic textbook example of the Fulcrum base and reversal pattern.
   
   
   
4. The key elements of the Fulcrum pattern are :- a small base followed by an upside rally that quickly collapses back to form a second base. This exactly describes the movement of the gold price since November. The buy signal is given when the price breaks above the second base. This has occurred during the past few days. The Fulcrum is frequently found at the end of much larger chart patterns and signals their completion.
   
   
5. There is a minor resistance at $275 that still has to be overcome. But any move in the gold price above $275 will not only confirm the upside breakout but start a significant bull run in bullion.
   
   

It is my analysis that bullion is ready, after promising so much for so long and driving all gold aficionado's crazy, for a major upside break. This move is signalled by the completion of the Fulcrum base that in turn points to the completion of the Falling Wedge that in turn indicates that the right shoulder of the huge three-year base reversal pattern is complete.

I look for a surge in the bullion price to at least $320 by midyear with the target of $395 being achieved before the end of this year.

Back to Elliott. What will be the reason for this third and final major bull market? We have already had the undervalued asset scenario followed by the inflationary picture. What the anti gold lobby conveniently forgets is that gold is not just a hedge against loss of earning power and degradation of capital due to inflation. It is the ultimate store of value in times of collapse, especially stock market crashes. It is a superb depression hedge against total loss of capital in terms of economic collapse. If you do not believe me just ask the Russians, Brazilians, Zimbabweans or any other country whose currency has come under severe pressure.

I believe that this final multi-year bull market will be the result of a huge bear market on the Dow that will drag the rest of the global markets with it. I do not have a great degree of confidence in Greenspan's latest dramatic actions. I reckon that he has lost control of the juggernaut US economy. Nobody factored the NASDAQ crash and its devastating consequences on both consumer spending and investor confidence into their economic models. As always, the market has the last laugh on those who attempt to control it!

Stay with gold shares. Durban Deep (DROOY) must remain my number one gold major. I must look for at least a 100% return this year in what I believe will be one of the leading market sectors, if not the top sector performer.

Dr Clive Roffey
Johannesburg
South Africa
February 2nd 2001

Editor's Note: Dr. Clive Roffey is South Africa's leading Technical Analyst, whose forte is gold mining stocks.