The long-term picture
The up-trend in the price of gold which began early in 2001 does not show many signs of weakness despite what some may believe in view of the price correction we have gone through in recent weeks, down from $ 390 to $ 345, or roughly 10%.

It is, nonetheless, normal for profit-taking to set in after any strong fluctuation, while the overbought situation unwinds. After the surge from $ 275 to $ 325, the price of gold also corrected down to $ 300 but held marvelously within the up-trend, offering an excellent buying opportunity. The jump from $ 325 to $390 catapulted the price out of the established up-trend. Nevertheless, the resistance zone which has turned into a solid support at $ 325 will certainly absorb any selling, should the price fall back to that level.

We believe that the price level between $ 325 and $ 350 should in any case be used to build up new positions.

On the other hand, we cannot ignore the important resistance zone between $ 375 and $ 400 established between 1993 and 1995.

The medium-term picture
Medium-term, we notice the break-out which occurred in December of last year after a consolidation period that had begun in June. Massive buying lifted the price of gold to $ 390 at which level profit-taking set in.

We believe that the new well-established support area above $ 325 will contain any selling and will act as a trampoline for an eventual jump to $ 400 or higher.

While short-term the uncertainties surrounding the Iraqi war can cause irrational fluctuations, we do not think that it will materially influence the long-term arguments for a rising gold price.

The short-term picture
Most likely, the correction down form $ 390 has run its course. Nevertheless, we cannot exclude a further round of selling which could bring the price down to the $ 325 area. Those who believe that we are in a long-term gold bull market should not put off buying in the idle hope of buying ten dollars cheaper.

Are US markets fundamentally cheap?
Historically, a FAIR valuation of US markets has indicated a dividend yield of 4 to 5%. Dividend yields at present however are still at less than 2%. Historically cheap US markets yield upwards of 6%. The answer to the above question is therefore simple: NO! As pessimism spreads, gold will rise, the dollar will fall as well as the major US indices.

The following recommendations were valid at the time of writing, viz. at

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Peter Zihlmann

February 26, 2003