1987 to 2005: From bear to bull: the multi-year trends and the long-term picture

The chart above clearly shows one thing: long-term trends often last many years. The bear market that started in 1988 ended in 1993. The up-swing that followed lasted from 1993 until 1996 and culminated in what may be called a false break-out. Then another bear-market unfolded taking the gold price down to $250 over a period of almost four years.

Then came the spike in the gold price as a consequence of the central banks' announcement that they would be limiting their gold-sales.

The 1999 bottom was tested again at the beginning of 2001. At that time, when few believed that any money should be put into precious metals, the present bull market started; a bull market we deem is still in its infancy.

The gold price hit $ 455.20 in December 2004, at which level a consolidation set in, bringing the gold price down to the lower trend-line, basically a healthy development.

"The long-term picture shows that the precious metal bull-market is far from over and that the market is preparing itself for the next major up-leg which we expect to start unfolding during the coming weeks.", we wrote on June 6 when gold briefly traded beneath $ 420.

The medium-term picture

From the above analysis, it is easy to see that there have been many buying opportunities since this bull market started in 2001, along with some excellent prospects for selling. We also said in our last report: "It also shows that at present, we are being offered a choice option for buying."

For those who have missed this "choice option for buying" may wonder whether they will be granted another opportunity. We think that it is unlikely as the gold price has been in a consolidation phase for several months and is in the process of superseding previous highs.

At this junction, it can be helpful to see how gold fared in relation to unhedged gold stocks.

It is in fact quite interesting to note that gold made a new high in December but gold shares were not able to supersede the January high of 2004. The reason for this is easy to see: gold shares moved up much more strongly than did gold from March to December 2003. Consequently, when the correction set in, gold shares also sold off more heavily.

"We remain confident that we are at the threshold of the next major movement to the up-side.", we said on several occasions during the past weeks and months. While gold made in fact little headway percentage wise, the HUI-Index has jumped by close to 30% since the low of last May.

But if you look what happened after May 2003 you can conjecture what may lie ahead of us.

The short-term picture

"Technical short-term indicators signal a massive over-sold situation. If the past offers a clue as to what this means, we may be in for an upwards movement which few expect at this stage.", we also wrote not long ago.

The US-Dollar

"The US dollar against a basket of various currencies is extremely overbought at present, therefore a correction is a rational expectation at least.", we pointed out in our last report and added: "As we expect the US-Dollar to fall further over an extended period, an investor is well advised to hedge his dollar-investments. "

As can been seen in above chart, the over-bought condition is in the process of being corrected and has reached a neutral level. As markets often move from one extreme to the next, opposite one, we expect the down trend of the dollar to continue.

THE TIMELESS PRECIOUS METAL FUND, which we manage, is 100% hedged in favour of the EURO. (www.timeless-gold.com).

The following recommendations were valid at the time of writing, viz. at

and may no longer be pertinent at the time of reading.

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Peter Zihlmann


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August 16, 2005

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