The AMEX Gold Bugs Index (HUI):
A Golden Opportunity to Buy Gold Shares revisited!
Peter Zihlmann
we wrote: “We are currently passing through another correction in the up-trend which we believe will end somewhere around 120 points.”, and presented the chart below:
Our prediction of “around 120 points” was very close, as the correction ended at 113.87 points on March 12, just two days later.
It is now appropriate to ask whether the “Golden Opportunity” still prevails. So let us examine where we are on the bull market road in gold.
The long-term picture
In November 2000, the bear market in gold shares, as represented by the Amex Gold Bugs Index, ended when this Index fell to 35.41 points, down more than 80% from the 1996 level. Six months later, this index had more than doubled, reaching almost 80 points.
After the consolidation of this strong advance which lasted until January 2002, another powerful rally followed, lifting the index once again by 100% to reach a high of 154 points in June.
Worried gold bugs suffered spells of self-doubt as the gold price had reached new recovery highs while the Amex Gold Bugs Index was unable to surpass the high established in June and fell back to a level below 120 points.
The up-trend however was not broken, but instead another support level was created within this up-trend, thus confirming that the bulls were indeed alive.
At the current crossroad two things may happen: (1) we pull-back to the up-trend line, or (2) we break above the resistance line, manage to stay there and have a lift-off that could take the Index 20 to 40% higher.
Let us first have a look at the medium–term picture!
The medium-term picture
“Medium-term, we believe that the consolidation within the up-trend is slowly drawing to its end!”, we wrote on March 10 and as we now know, we reached the reaction low the following week.
Since those days, the Index has been steadily climbing towards the resistance level around 155 points.
The big risk at present, in our opinion, is rather to miss the next important move UP. Even in the case that we should have a pull-back towards the up-trend line, which is of course possible, we should not be deterred from the obvious fact that the market pushes higher whatever the resistance may be.
We believe therefore that those who have missed buying at lower levels should not defer their purchases.
The short-term picture
“Short-term, the Amex Gold Bugs Index shows that it is in a down-trend.”, is what we wrote on March 10. The opposite is now true, and we might even add that we are a bit overextended in the up-trend channel.
While a day-trader senses the opportunity to make a quick buck on the down-side, those who believe that gold will move considerable higher over the long-term should simply buy and hold.
Gold
Fundamentally, none of the arguments in favor of gold have lost their “raison d’ ętre”. Consider:
When government spends money for social programs, economic stimulus programs, or to fight wars, it must either tax, borrow, or print the money!
Your paper money will continue to lose its purchasing power. This is why you have to put your savings into real money: GOLD!
The following recommendations were valid at the time of writing, viz. at
and may no longer be pertinent when you read them.
To receive the follow-ups and up-dates on our recommended gold stocks, register at www.pzim.com.
Yours sincerely,
Peter Zihlmann, www.pzim.com, or email to forex@pzim.com
June 23, 2003
Disclaimer: P. ZIHLMANN INVESTMENT MANAGEMENT AG does not accept any liability for any loss or damage whatsoever, that may directly or indirectly result from any advice, opinion, information, representation or omission, whether negligent or otherwise, contained in the trading recommendations or in any accompanying chart analyses, whether communicated by word, or message, typed or spoken by any of it's employees.
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