Last week I mentioned the boundaries to watch to guess the next direction for gold. Well, the lower boundary was broken during the week suggesting the direction continues to be towards lower prices. So, how low? Right now the short term P&F charts suggest $400 and then $388 while Merv's Fan Principle suggests it could go back to the May low of $371. Hey! If I throw enough numbers out there I have a better chance of claiming "I told you so".

It's always nice to have some target in mind when one is in the market BUT don't ever rely on any of them, rely only upon the market action of the stock (or commodity) and go with the flow. Surprises always happen, and they normally do so just prior to hitting your target price.

Let's look at today's bar chart and see if we can decipher, in a simple manner, what is happening to gold. I like to keep things simple. I have found that going into sophisticated techniques is not worth the extra time and effort (although people are more likely to think of you as very knowledgeable). Don't expect 100% perfection. No technique is perfect.

Today's chart is a daily bar chart of gold futures action. It is presently the April 2005 contract data. I change the contract month to reflect the contract with the highest open interest to get continuous data.

In previous commentaries I had mentioned the Merv's Fan Principle. The breaking of the third fan trend line was the end of the trend, right near the very top. The break down of the intermediate term (50 day) RSI momentum indicator confirmed the break. Volume decrease as the price inched into new highs was also a give away. A few weeks later, near the end of Dec, gold broke below its intermediate term moving average line and the line slope turned down. By the end of Dec all indications were in place to suggest a bear intermediate term trend.

The attempt at a rally over the past few weeks failed. It couldn't break above a well defined down trend line or above its negative moving average line. The price momentum continued weaker than the price action. The break below support on Friday just confirms the intermediate term bear.

The only laggard in all this is my intermediate term P&F chart. To confirm a bearish intermediate term trend gold must trade at $415.00. The contract traded as low as $415.50 on Fri, just a hair above the critical price. Expect to see the price and trend confirmation from the P&F on Mon. For now, and until proven otherwise, gold is in an intermediate term bear trend.

U.S. Dollar

The boundaries suggested last week for the US$ were broken on the up side on Fri. The rally continues and is now being confirmed by the momentum indicator. On the bar chart there is some resistance shown in the 85 area but the serious resistance would be in the 88 to 90 region. The US$ seems to be playing its role as an opposite to the gold trend. The only negative to further upside action is my P&F chart of the US$. Although it has broken above resistance it has not broken above its down trend line. Maybe the P&F is just a lagging indicator here but keep your options open.

Gold Indices

The Johannesburg Gold Index and Merv's Gamb-Gold Index moved higher on the week. All others continued in their downward trek. However, even Merv's Gamb-Gold Index component stocks generally performed poorly. The rise in the Index value was due to a healthy move by only three component stocks. It was a good week only if you held one of these three stocks.

Merv's Gold Indices

As mentioned above, only Merv's Gamb-Gold Index performed well and only due to three component stocks. In general, the Indices moved further into their bearish mode. The Indices are getting so bearish in the ratings of their component stocks that one almost suspects that all the bad has already been acted upon and some good may be just around the corner. However, one would not invest hoping for a corner just ahead. You would wait for the corner to arrive and are once more in a new direction.

I have been asked if I could recommend some gold stocks during the commentary. As a technician I do not recommend any "investing" in gold stocks while the trend of the overall stocks is so negative. However, there are always a very few that go counter to the trend. The following seem to be in early stages of new moves and are ONLY for those who understand GAMBLING against the overall trend. Look them over and check with your investment advisor before committing any funds.

Gabriel Res. Ltd. (T/GBU): Appears to be on the move but still could use some extra strengthening action. A close above $2.00 would confirm a new move in progress. A P&F projection would then be to its previous Jan 2004 high of $5.00.

South-Malartic Exploration Inc. (V/MSU): Bottoming action evident with present projection to the $0.48 level. This would trigger a further projection to the April high of $0.60.

Western Prospector Group Ltd. (V/WNP): Sharp move during the week. A close at or above $1.80 would put it into new high territory on its way to $4.00.

Reading the Info table

The intermediate and long term technical information table provides the latest weighted moving average (MA), price momentum (MOM), relative strength (RS) and an overall technical rating (RATE) of each component. A + or - symbol is provided to indicate if the indicator is gaining strength or losing strength.

Mervyn Burak, CMT
Hudson Aero/Systems Inc.
Technical Information Group

merv.burak@hudsonaero.com

5 February 2005

During the day Merv. practices his engineering profession as a Consulting Aerospace Engineer. Once the sun goes down and night descends upon the earth Merv. dons his other hat as a Chartered Market Technician (CMT) and tries to decipher what's going on in the securities markets. As an underground surveyor in the gold mines of Canada's Northwest Territories in his youth, Merv. has a soft spot for the gold industry and has developed several Gold Indices reflecting different aspects of the industry. As a basically lazy individual Merv's driving focus is to KEEP IT SIMPLE.

Although not normally available to the public, to obtain a copy of the latest weekly technical information on the component stocks of the various Merv's Gold indices, e-mail a request mentioning this Gold-Eagle offer. PLEASE provide at least your full name and home town.