Bottoming process continues;
May should be the magic month
The precious metals sector looks to shine in the months ahead. There are
many positive things from a chart/cycle perspective that support a bullish
gold outlook. From a long-term perspective, it is plainly evident that the
gold chart has been bottoming for the last seven years. The fact that gold
bears have been unable to violate the benchmark $250 level is extremely
meaningful.
The one-day, nearly five-dollar spike on the June Comex Gold contract
yesterday (April 16) was impressive in terms of points, but not in terms of
trading volume. This move was really nothing more than a reflection of one
of gold's minor cycles, which happened to turn up late last week, but this
cycle is so short in amplitude and duration that we can safely affirm that
gold has probably seen its maximum upside objective for the week. At any
rate, gold prices should carry no higher than $267 in the days immediately
ahead. From a chart perspective, gold's consolidation process is still
ongoing.
Open interest on the Comex, at just over 85,000 contracts, has been
increasing in recent weeks, but is still not supportive of a big upward move
in gold prices in the immediate future. Still, the increasing open interest
must be viewed as supportive of our bullish intermediate-term gold outlook.
Of the other major precious metals sectors, platinum futures have looked
the best, with the Comex platinum contract rocketing nearly $30 yesterday.
Our cycle work suggests that this will likely be the maximum upside objective for platinum this month. The volume behind yesterday's big move was conspicuously light, which is not supportive of an upside continuation.
Silver, meanwhile, is forming a base of support near the $4.40-$4.50 range
and is technically in a short-term uptrend. Silver should move sideways to
higher in the weeks ahead and will be in a strong position when gold makes
its big move later this spring. In fact, from a relative strength standpoint
silver has the brightest outlook of the three major metals.
The cycles governing the Rydex Precious Metals Fund (RYPMX) will produce
a net sideways movement over the next few weeks; therefore, this fund should be rated neutral at present. The Amex Gold Bugs Index (HUI) is also
short-term neutral, although the movement of this index over the next few
days is pointing up.
Among low-priced issues, Echo Bay Mines (ECO) is a short-term buy
candidate, although its intermediate-term cycle is pointing downward. We
recommend purchasing ECO at current levels ($0.65/share as of this writing) in anticipation of a run-up to approximately $0.85.
Alliance Gold Ltd. (AGS.AX) is in process of bottoming, long-term, but
shorter-term the cycles are still in the descending phase and will drag
Alliance's price lower in the weeks ahead. Alliance may be sold short from
present levels of approximately $0.08/share, with an expected decline to
$0.06/share or lower by May.
Ashanti Goldfields Co. (ASL) is in a net sideways pattern, but the
near-term cycles have turned up. ASL should be purchased at current levels
(around $2/share) and held for the expected move higher over the next several days.
We have learned from the '90s bull market in stocks that when the
dominant traders (viz., the bulls) have control of the ball, so to speak,
they control the trend. Whenever bears get control of the ball they must run with it or else risk losing control almost immediately. Well gold bears have got full possession of the ball, yet despite their many advantages, they
simply have been unable to drive gold prices below that critical $250
level-even when the most recent dominant interim cycle was in their favor.
This proves they are impotent to drive prices any lower and that gold has
indeed found a solid foundation from which to launch a major bull market.
As stated previously, gold's dominant long-term and intermediate-term
cycles have already bottomed...only a couple of minor cycles remain to bottom before gold begins moving uniformly higher. When will this move begin? Probably by no later than May-only a few weeks away.
Fundamentally, the deteriorating economic shape of the U.S. will help to
catalyze this incipient bull market in gold and will spur the investing
public to a greater awareness of gold's de-facto position as the ultimate
store of monetary value and safe haven in times of economic and financial
chaos. 2001 will most emphatically be gold's year to shine.
The XAU gold/silver index is emphatically bullish from a short-term,
intermediate-term and long-term perspective. In fact, everything about the
XAU's chart gives us every reason to be bulls on the mining stocks right now.
There are only a few minor blights in the precious metals sector right now,
mainly in terms of mining stocks that are declining under the influence of
short-term cycles in the bottoming phase. On prominent example is Anglogold (AU), which, short-term, may be sold short, as its chart pattern and cycles are pointing downward into spring. Longer-term, Anglogold shares gold's positive outlook.
The cycle chart for Placer Dome (PDG) is pointing downward, short-term.
PDG is therefore a safe short sell candidate right now. Use a protective
stop of $9.60 when placing orders to sell short PDG.
Blue-chip leader Barrick Gold Corp. (ABX) is short-term bearish under the
downward pressure of the 6-month cycle and should be sold short into May.
Use a protective stop of $16.50. Expect a high of $15 or slightly above for
Freeport McMoRan Copper & Gold (FCX) in the days/weeks ahead. After this, however, we anticipate a sizeable pullback from its impressive run-up of
recent months. Look to sell short FCX later this month as the $15 level is
approached.
Clif Droke
April 23, 2001
Clif Droke is the author of several books on market forecasting, including
Technical Analysis Simplified and most recently, Moving Averages Simplified
(Traders Library). He is also the editor of the weekly Parabolic Report.
For a free sample issue of the newsletter, send name and mailing address to
cdroke9819@aol.com, or write: Clif Droke, 1101 Holston Ave., Bristol, TN
37620.
Also by Clif Droke
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