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Huge gold breakout at hand
Gold is poised to launch its first leg in its incipient 9-year bull market. The fateful hour is nigh and could begin at any time between now and late December. The upmove will then pick up steam at the end of the first quarter of 2001 when negative corporate earnings and an eroding economy will force investors to give gold a closer consideration as an asset preserver.
On what evidence do we base this assertion? Simply on the fact that gold's 18-year cycle completed at this time last year, and in so doing gold broke out of its dome formation which had-until then-acted to contain prices by exerting a bearish influence. With the 18-year cycle dome broken, gold's price is no longer being suppressed by cyclical factors. And time is the most important factor in the supply/demand equation. From this point forward, all attempts at manipulating gold's price movements (via central bank machinations, institutional trading, etc.) will prove futile. For the first time since 1980 gold now has time on its side.
Last week in its Friday edition (Nov. 10), Investor's Business Daily ran an article with the headline "As Uncertainty Rises, Gold's Pulse Hardly Stirs." This type of article is typical at major bottoms, where investor psychology is at its lowest point. Along with the article, IBD printed a 10-year chart showing gold month-end prices through Oct. 31. We have included a copy of that chart, but with our cycle analysis to boot. Notice how the bowl-shaped supporting cycle-which technically began in 1990 (at which time gold began its final basing process)-has acted to contain every attempt of the manipulators at cracking gold's price below the critical supporting floor at $252.80. Despite the best efforts of central bankers, gold's underlying time support (represented by the bowl) has held true.
Notice also the parabolic dome pattern extending from 1992-93 through the
present time. The arch of the parabola ends right now-late fall of 2000! That means that once gold breaks out of the confines of this bearish cyclical
influence-the last of the bearish cycles-its price will have absolutely no
overhanging supply to weigh prices down. From that point forward-and the
break could literally begin any day-the upward curving supporting cycle will carry prices higher. Our first intermediate-term objective for gold is the $400-$420 range, a level which should be reached by March-April 2000.
More evidence for a coming gold bull market is found in the charts of several major mining stocks. Notice, to take one example, the long-term chart for Placer Dome (PDG). There is a recurring 8-year cycle in Placer Dome, which can easily be seen in the long-term chart when the bowls are drawn along the bottoms of its priceline. The last 8-year cycle in PDG peaked in 1996, then fell into the present time in 2000. The exact midpoint of this cycle has been met (at approximately $8/share). That means that from this time forward Placer Dome will represent a buy as it follows the upward curving support for the next four years. PDG tends to mirror gold price trends quite closely.
Our analysis strongly suggests that we are on the very cusp of a magnificent upside breakout in gold. The coming rally, once underway, will be fueled and sustained by a plethora of bad economic and political news, on both the domestic and international levels. War, political uncertainty and upheaval, and general financial collapse will all conspire to make gold the de facto safe haven for millions of investors once again.
16 November 2000
Clif Droke is editor of the weekly Leading Indicators newsletter, covering the U.S. equities market outlook from a technical perspective as well as the general economic outlook. He is the author of the recently published book, Technical Analysis Simplified. For a free sample issue of Leading Indicators, send name and mailing address to email@example.com or mail to:
Leading Indicators, 816 Easely St., #411, Silver Spring, MD 20910.
Also by Clif Droke