Gold moved further into the negative during the week with a serious drop on Friday. It should go without saying that gold is now below all of its moving average lines (long, intermediate and short term). The trend should find some sort of support at the previous Feb low, in the $411.50 area. However, for how long such support will hold or if it will cause a reversal of trend is something that we just have to watch for.

On the long term, Gold is still above its long term up trend line from the 2001 lows and sitting on top of its up trend line from the 2003 low. Other than that, the long term point and figure chart is about the only thing that is still positive, and here I am starting to view this chart as a VERY long term chart.

On the intermediate and short term, well, negative, negative, negative is about all I can see. It is so overall negative that one is almost expecting a rally any day now. However, the indicator that is still most discouraging is the volume indicator. Daily volume has consistently been low, except for a few days which turned out to be down days. This is not what one wants to see. Some technicians may suggest that low volume equates to a lethargic populous and that this is the time the professionals are buying, prior to a new bull. I would caution against any such position. Stocks and markets do not need volume to drop 20%, 50% or 80%. Maybe at crucial points along the down slide volume might pick up but in general down trends occur with little or no volume increase but most likely with volume decrease. The thing to watch for is possibly extreme volume for a day or two with little price change. That might just indicate a final bottom more so than anything. There are all sorts of technical concepts that technicians grab on to while trying to "pick the bottom". My lazy approach is for the bottom to happen and then jump on the market in its very early reversal stage, after the bottom, when the odds of success (and the lowering of risk) have increased greatly. For now, bearish is still the operative word.

Looking at the aggressive Stochastic Oscillator for some hint of what one might expect in the next day or two, nothing much overpowering comes through. It is on a bounce from below its oversold zone. However, it is still deep in the negative zone and looking like its move up might be ending.

I've been asked by many readers "What is this Stochastic Oscillator?) Well, it is nothing other than another price momentum indicator although one more designed to pick out moves on a very short term basis. Most momentum indicators are based in one way or the other on the security closing price information. The Stochastic Oscillator is somewhat unique in that it takes into account the high and low prices in addition to the closing price. By changing a few of its parameters one can make this a very aggressive indicator or a less aggressive indicator. Since I have simple indicators that provide me with reasonable results on the less aggressive side, I use parameters for the Stochastic Oscillator that would provide those more aggressive values. As with ALL indicators, sometimes they are right and sometimes they are wrong. NO indicator is perfect. Indicators that I use here are simple indicators that have been around for a long time and have proven their overall worth in all kinds of markets.

U.S. Dollar Index

The US$ Index continues to do what it has been doing for some time, moving opposite to the gold trend (or is it the other way around). It is very bullish on all fronts. After Friday's move, there seems to be no cloud on the horizon for the dollar, yet.

Gold Indices and Stocks

Shown this week is the AMEX Gold Miners Index. Very obvious, a disaster recently. However, I just thought I'd bring in some little bit of encouragement after all this doom and gloom. With this chart is one of my developed indicators. It is an intermediate term price momentum indicator. What is interesting here is the "bottoming" process that the indicator just might be going through. If we look back to Jan we see this indicator bottoming out and starting to turn up before the price bottom. Looking at the indicator now, we see the same thing just starting to happen. The turning up is not yet here but it looks like only days before the up turn in this indicator will commence. Can the price be far behind? Stay tuned.

As for the various Merv's Indices, these show what the average gold stock is doing. Despite the difference in "quality" there is little difference in downside performance (so far) between the Merv's Qual-Gold and Gamb-Gold Indices. The Qual-Gold Index has dropped 29% since its top while the Gamb-Gold Index has dropped 26% since its top. During a long term bear market one should normally see the Gamb-Gold sector decimated versus the Qual-Gold. Does this indicate more serious downside still ahead for the Gamb-Gold? We'll see.

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

22 May 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.