Contributed by Olaf Sztaba
NA-Marketletter
www.na-marketletter.com

THE SUMMER DOLDRUMS WON'T LAST LONG
Olaf Sztaba
INTRODUCTORY SUMMARY: The latest surge in the price of gold shows how the metal likes to rally. The bull market, however, doesn't like company. In the pre-rally period it always aims to confuse and disappoint the greatest number of investors possible. Gold and gold stocks are doing just that.

GOLD NOW: Recently, gold made significant progress. The yellow metal topped the $400 level in just one shot, moving above its 50- and 200-day Moving Averages. The longer one (200-day MA) continues trending upwards, while the shorter line (50-day MA) is about to turn to the upside. These technical developments, although positive, still allow gold to experience one more setback before the metal turns into rally mode again.

*Chart with the 50- and 200-day moving average, courtesy of Stockcharts.com.

GOLD STOCKS: Gold stocks behave somewhat differently. The main gold stock indices have returned above their 50-day Moving Averages, but are unable to conquer the important 200-day MA, as gold has done. What does this mean? Gold stocks are lagging behind the yellow metal, which usually happens before a pullback. It is highly possible that investors will be given one more chance to load gold stocks before they start rallying, but don't expect any significant discounts. This is a two-layer bull market (the best of all) when secular and cyclical trends are both bullish. Having said that, counting on much lower prices may be an illusion.

*Chart with the 50- and 200-day moving average, courtesy of Stockcharts.com.

In short, any serious decline in the gold sector is a bonus and should be viewed as a buying opportunity.

THE INTERMEDIATE-TERM: Two major gold stocks indices, the HUI and the XAU, are trading below the falling 40-week Moving Averages. As long as they remain there, the latest mini-rally should not be considered a new up-leg in progress. Gold indices will most likely hit those averages from below and stage one more sell-off. The time-window for such a manoeuvre is closing fast as we approach the August-September period - a popular time for a golden rally to begin.

FINAL SUMMARY: Don't let the market confuse you. The gold market is preparing to do something big - very big. Stay alert and consider any occasion to accumulate gold stocks.

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Contributed by Olaf Sztaba
Email: osztaba@na-marketletter.com
Website: www.na-marketletter.com

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July 23, 2004