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Maund On Gold
I am currently relaxing in a tropical paradise, the island of Boracay in the Philippines. Yesterday I sailed all around the island on a traditional but fast sailing craft. A great journey through warm waters, stopping here and there on idyllic beaches and small islands for fresh coconuts etc. Just a few years ago this island was completely unspoiled, but development is proceeding at a rapid pace and the inevitable loud music bars and noisy motorbikes that cater for the lowest common denominator have turned up here. In a few years it will probably be ruined, like so many other places. I spent some days in Manila, a city that I would classify as dysfunctional. Manila is gridlocked by heavy traffic, so much so that it is impossible to move about it freely. The stationary traffic is made up mostly of vehicles with old untuned engines that burn low grade gas and belch suffocating fumes and smoke into the air. This city is a serious health hazard - I had respiratory problems after only half an hour in the traffic. I would never take a child there. I found sanctuary in the magnificent Manila Peninsula hotel, where I was delighted to find standards of service that I normally associate with a bygone age.

Gold has finally broken out decisively, rising above the major resistance in the $320 - $340 zone by a significant margin. The importance and long term implications of this move are profound and will not be diminished even if gold slips back towards $320 in the near term. Many stocks have simultaneously made significant breakouts, with very impressive volume action signifying much higher prices to come. Regular readers of my articles will know that this is a development which I have been expecting. I have also been aware that the decision to launch an offensive against Iraq was taken a long time ago behind closed doors, and the weapons inspectors charade is just a circus, whose purpose is to make the public think that all avenues have been explored. I believe the agenda is already set and the war will go ahead by the middle of February, before it gets too hot. Whether this turns out to be quick "surgical" war or not, it will not be the end of the story, because of the unpredictable terrorist response, possible grassroots muslim uprisings, and the proclivities of Bush and the Pentagon, who have their sights set on Iran and Syria, once they've dealt with Iraq.

The sharp upward move in gold obliged the main financial TV networks to wheel in their "experts" to tell the general public what lies ahead. Their basic line was that this gold advance is due to the impending war with Iraq, which will be a "Gulf War Mk 2", a nice tidy display of American firepower, which will be over in a few weeks, and that gold will likely peak around the start of it and then fall back towards $300. This is, of course, rubbish. The circumstances this time around are not identical, and, in any case, the principal reason for golds' advance is the decline of the dollar, which is gathering speed.

Yesterday, as gold rose above $350, short term indicators such as moving average convergence/divergence and momentum signaled a significantly overbought condition, on a short term basis, and, sure enough, as the news that Iraq was considered to be in non-compliance emerged, a wave of profit taking appeared on this news.

There was an old saying on the British market: "Buy on a Strike", which means buy when things look at their worst, and, similarly, it may well make sense to take profits on a part of one's holdings around the time of the outbreak of the war, depending on how overbought the market is at that time, and then buy back on a dip. Remember, the war with Iraq primarily concerns us in its effect on the timing of trades - the primary driver for this market will remain the decline of the dollar. I believe that, after a period of consolidation/reaction to unwind the short term overbought condition, which will last perhaps a couple of weeks, gold and gold stocks should continue to forge ahead in the coming weeks until war breaks out.

I read that Chinese citizens are now able to buy gold for investment purposes for the first time. It is my view that as the United States continues to atrophy and decline, sinking ever deeper into a quagmire of its own making, China will continue grow in power and influence and be an ever bigger force in the gold market. I believe that any sales of gold by the Fed, from a probably severely depleted reserve, in an effort to stall gold's advance, will simply be soaked up by Chinese and other Asian and Mid-Eastern buying. The British government actually called the bottom of the gold market beautifully a couple of years ago, by selling half the UK gold reserves at rock bottom prices. I regret to inform the UK government that they have now missed their chance to offload the rest at a very low price.

So, we are now in a gold bull market against all currencies, including the US dollar. If you are reading this and not currently into gold shares, don't worry, you haven't missed the boat. I believe gold is going up to $2000 minimum over the next several years and this is a conservative estimate. Richard Russell is talking about $3000 and Adam Hamilton $5000. Gold has only risen $100 so far from its bear market low, which means that if my estimate is correct, it will rise by about 16 times as far as it has already and much more still if Russell or Hamilton are proved correct. It should be obvious that should this come to pass, the gold stocks, which are highly geared to bullion, will enjoy rises of almost astronomic proportions. We are still very early in this bull market.

Strong stocks should now be accumulated on any dips - see my recommendations of the past few months.

Happy Christmas and a prosperous New Year to all readers.


Clive Maund
email: Clive.Maund@t-online.de

20 December 2002

Clive Maund, Diploma Technical Analysis, no responsibility can be accepted for losses that may result as a consequence of trading on the basis of this analysis.

Disclosure: I have no personal financial interest in this stock and I have not received any payment for writing this report.

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