At the moment, gold has consolidated around the $380 zone but is beginning to move back to its 200-day MA, currently located at $394. This level coincides with a strong resistance area placed just above the recent price action. Expect gold to experience turbulence as the yellow metal approaches its 50- and 200-day MAs, as well as strong resistance around the $390-395 zone.
In sum, gold is staging a come-back to its 50- and 200-day MAs. The yellow metal, however, may require further corrective action before it is ready to stage an assault on its previous high.
AN INTERMEDIATE-TERM VIEW: The beginnings were not easy. The first leg of the bull market (Leg 1) in gold was accompanied by laughter and disbelief in the investment community. Our market call regarding gold back then was questioned as over-optimistic (see our "Conversations with Gold"). The up-trend in gold which followed not only disappointed the bears, but also shocked the bulls, who were unprepared for such a banquet. Please note that the bulls' stampede took place almost entirely above the 40-week moving average, which had provided support for the metal on the way to the top. The first sign that gold is on the verge of a deeper correction was a move below its 40-week MA. The major intermediate-term correction began its work.
There is no drama and no need whatsoever to abandon gold. It is just a much-needed correction, which clears the air before the bulls forge ahead again.
A SECULAR (multi-year) PICTURE: In the big picture, gold has done nothing yet. All it has done so far is to clear the house of debris and start building a foundation for the future. We believe that with a multi-year perspective, the current price of gold will look like a prime joke. You doubt it? Do you see disbelief? That's nothing abnormal or unique. It is the normal reaction of the street at the beginning of each secular bull market.
With each serious decline in the price of gold, typical psychological factors are at work. There is a 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. (Negative emotions feed the bull market and keep it strong and healthy for the long run.) 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. Don't let the bears scare you off. Keep your finger on the "buy" button and do not be afraid to press it as the gold stocks' supermarket discounts them one by one.
For individual gold stocks recommendations sign in for a free trial at
www.na-marketletter.com
Olaf Sztaba
osztaba@na-marketletter.com
www.na-marketletter.com
24 May 2004