THE ACCLIMATIZATION PERIOD IS OVER
Olaf Sztaba
The investment world needed a lot of time to get acclimatized to the new bull market in gold. At the beginning of 2002 when we argued that gold and gold stocks were on the verge of exploding, our comments were met with heavy scepticism. We wrote: "An important shift is taking place in the financial markets arena and the main beneficiary of that long-term relocation of capital is gold." And "The bull-run in gold is still in its early stage and you have enough time to put your money where it should be for years to come." Today, the bull market in gold is incontrovertible.

In May of 2001 gold moved above its 40-week moving average and since then it has been trading higher in a nearly unbroken manner. During this climb, the 40-week average acted as a strong support for the index. Each time gold ran away from the average, corrective forces began to work, causing gold to retrace some of the gains and return to the MAs.


Chart courtesy of Stockcharts.com

With the move below its 40-week MA, gold began its major correction. The sharp decline in gold sparked a short-term relief mini-rally towards its 40-week MA, which is currently located at CAD$394.00. Eventually, gold should fall again before it is ready for the next bullish round. Strong support is located at $375 and major resistance at $425.

With each serious decline in the price of gold, typical psychological factors are at work. There is fear of the return of the bear market. There is doubt about the on-going bull market. This is nothing new. Negative emotions are what every long-term bull market needs to be sustainable and liveable. Those who panic, sell, feeding the raging bulls all the way to the top. Don't be one of them. Stay with the trend. Keep in mind that this is a secular bull market - actually just the beginning.

In sum, gold is in a bullish and secular cycle. Every correction should be an occasion to refresh and fill up before another leg up.


Olaf Sztaba
osztaba@na-marketletter.com
www.na-marketletter.com

20 May 2004