The technical and fundamental outlook over the long-term is simplified when it is broken down.

Gold is priced in U.S. Dollars. Do not minimize this critical point. To a foreign investor, gold becomes less expensive as the dollar weakens (or as their particular currency gains strength against the dollar). Therefore gold prices generally trade opposite, or inverted to, the U.S. Dollar. This is not unlike the relationship between interest rates and real estate values. A $250,000 home at a high interest rate would equate to a much more expensive home at a lower interest rate, mainly because the monthly payment would be similar. Therefore real estate values tend to rise on lower interest rates, and decline at higher rates. Similarly, gold prices will rise on a weaker dollar because of the reduced price to foreign investors. This will create a greater foreign demand and boost gold prices. Thus, it is a very big point of interest to gold speculators to analyze the next move in the U.S. Dollar.

The U.S. Dollar reversed a long-term uptrend over a year and half ago. Currencies, which a normally long-term trending markets, are showing short term signs of bouncing. This is more often then not an opportunity to jump on the longer-term trend at better prices.

The recent break in the near term flag pattern suggests a quick retest and ultimate break of critical double bottom support at 97.62. This sure looks bearish to me.

Another major relationship to gold prices is the stock market. As investors have put a premium in gold prices as a flight to quality move off of dissipating returns in the stock market, the next move in gold hinges greatly on the next move in the stock market. Flight to quality can best be defined by investor concern over speculative investing, like the stock market, and often occurs when the stock market no longer becomes a safe place to make returns on investment. Over the five major bear cycles in the stock market's history, gold prices have been a consistent profit maker as a diversified investment. Therefore, if the stock market is in a recovery phase, this premium already partially built into gold prices, will quickly dissipate and cause a decline in gold prices. However, if the recent post-war bounce in stocks is short-lived, and another sell wave is about to commence, then additional flight to quality premium will be added back into gold prices and a rally should ensue.

On this weekly chart, the Dow looks like a short-term bullish market, but continues to be extremely bearish onthe longer-term outlook.

The market not only hit a multiple top high at or near 8500, but broke through and then back below, which is ultimately a very bearish sign.

Looking at the recent gold congestion in gold prices, short-term traders are perplexed by the market's inability to continue down or rally. This congestion is normally a sign of an impending breakout. When and where becomesthe question. Looking over numerous time frames is normally the best way to decipher short-term confusing trade signals and see a much clearer path.

Gold appears at a critical juncture. Will the recent rally follow through and break critical $340 resistance? Will the trend and arc formations hold to see another run up? A move above $340 would be an incredible confirmation.

On a weekly chart, gold prices appear to be holding to separate but similar trend line supports, with the most recent bounce coming just above a solid 50% retracement indicator, which is a solid tool in finding pivot points in breakout markets.

On the longer-term monthly chart, gold is still holding a beautiful arc bottom, with longer-term trend line support holding up (barely).

With recent move to $390, gold thoroughly broke through the 50% retracement mark from the 1995 highs, suggesting that the market may have another run up left in it.

Overall, gold appears to have everything indicating another bull run, but is also on the edge of some serious indicators. This should equate to safer bull plays with defined risk, a technique that would reduce exposure on a premature market call. The reason to get in early, however, is that time and time again gold has proven to be a market to jump without warning, and therefore cause traders on the sidelines to miss most of the move by not being always in the market.

May 5, 2003

James Mound
JMTG Brokerage & Analytics
7189 Balboa Road, Jacksonville, Florida
888-744-8866
www.moundreport.com

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