Buckleup!

October 1, 1997

Summary, update from the early 97 study:

The rally in gold and gold/silver shares that has begun in the past few days is the continuation of the bull market that began in early 1993 and ended for the bulk of metal shares in January 1994. Most of these shares have been in a bear market for 3+ years.

The highs achieved in gold bullion in early 1996 have always troubled me. Most gold shares peaked months if not a couple of years earlier. The nature of the highs did not seem 'right'. It is hard to explain that except to say it did not then or now feel like the end of a complete gold bullion bull cycle.

It was my thinking at the time and this thinking has never wavered that the high for this cycle which began in 1993 did NOT end in 1996 but would reach some higher levels in 1998. This is still my thinking.

I think that $400 gold is a lock before end of January 1998, $500+/- bullion is more my real target and thinking so don't laugh to hard just yet. There will be time enough for that.

I expect an important high in early 1998 for many of the gold/silver shares. The bull should continue to linger and excite into summer1998 when I expect the non metal sectors of the market to find an important bottom if not a bit earlier. The 2nd half of 1998 should witness the most extraordinary rally in the broad market anyone has ever seen, making the past few years excitement seem geriatric.

Most of the percent gains in the metal and metal shares will occur before Christmas.

Homestake Mining is an excellent proxy for gold bullion, ocean liner like, it takes months and months to turn it from bear to bull and vice versa. This makes positioning easier than xyz ltd which can turn in the time it takes to go to the bathroom.

The charts presented are an update to the study I did in early 97 on this forum. It is my goal to show from the charts that HM bottomed in late 1996 and began a slow accumulation process with marginally lower lows until July 97. The difference in price between the October and July lows is so unimportant (one good days rally) that for practical purposes HM has been telegraphing to anyone who bothered to pay attention that the dichotomy in gold and gold shares during this period strongly hinted a new bull leg would commence from whatever low gold bullion finally plumbed. In essence, because it takes so much time to change course this share signals well in advance the beginning and end of the gold cycle. This is not to say that it will in the future, only that it has for the past decade or so, this latest period being no exception.

The chart of HM strongly suggests that the high in bullion in 1996 was an irrelevant event meant, if nothing more, than to confuse and intimidate investors into thinking the cycle was over. Too many non confirmations occurred during that period to make the 96 highs honestly believable as the bulls top. The chart of HM indicates to me that HM will reach new all time heights in the months just ahead and that gold will surpass the $400 mark and possibly even the $500 mark. Let's wait a bit to carve that in stone. Silver is providing quality leadership and should surpass the 95 highs and reach in my opinion the 8.50-10.00 level in less than 6 months.

One last caveat, much of the technical and chart analysis I have undertaken during the last 8 months all points to an historic breakout for many of the Gold/Silver shares. Many will surpass all time highs and many will equal those highs in the months 'just ahead'. What this means for the bullion itself I have no clear cut idea. Futures and bullion trading are not my primary interest. Suffice it to say something big is coming this way, of its specific narture your guess is as good as any.

Chart Commentary:

The monthly long term chart of Homestake suggests to me that the 1982-1987 bull market constituted one complete cycle as did the decline from 1987-1993. The cycle that began in 1993 did not, in my opinion END at the 1996 high for gold bullion but rather has only now completed the correction from the highs reached in 1994. To compare this period with the earlier bull cycle 82-87 suggests that now is more akin to 1986 with a giant run up to end this cycle now just underway with the expectation of an important 1998 high before July of 98.

The two weekly charts with volume are meant to compare share behavior during declining and bottoming periods. Furthermore, a sustained increase in volume during such a period is an essential leading indicator, perhaps the most important indicator in deciding when a change in major trend is likely. The pickup in volume can be poetically compared to the refueling, prefatory to the change in course of an ocean liner.

The dual charts of silver and gold bullion strongly point to a major trend change in silver bullion now underway, perhaps the best in 17 years. From gold bullion the lower low in July of 1997 makes the chart look weak. I do not believe it! Because of the behavior of the platinum group metals thus far this year and the powerful technical nature of the silver chart I think it is a fakeout meant to postpone buying longer than would normally be the case . Time will of course determine the efficacy of that statement.

Asides:

All things eventually end. Most people when it their time to depart this earth actually go, sitting down or in bed. It is relatively rare, considering how many people actually die every year, to end ones' time because of a thunderbolt, or a plane crash or some other spectacular event. Life is rather mundane, it begins and ends rather quietly. So it is with the edifices man creates. For the past few years I have heard and read countless scenarios as to how the current bull market, the fiat monetary system, the US dollar, the central government of the nation state will all go out in a blaze of light and noise and smoke.

If you really look around it is usuually the silent killer that stalks living things; cancer, heart disease, diabetes.... you get the idea. Systems end not a whole lot differently than we do, baked within the cake of these structures is their undoing. We have arrived at a point in time when our technology is rapidly outgrowing the socio/political/monetary structures we have created to organize our civilization. The year 2000 date recognition problem is just such an insidious killer as cancer or heart disease. It is not flashy or likely to grab much air time on CNN. It is even less likely to be fully understood or even taken seriously by ordinary people let alone the rulers of our various cultures. In essence, it is humdrum, too simple, too obvious to be taken to be, life threatening. Yet there it is, creeping up on our civilization day by day like the real killers of life always have, silently without much fuss and with an immovable point in time everyone can see.

It is ironic that here at the end of the second millenium, at the end of the Industrial Age, at the very start of a new world none of us can even imagine clearly, what is most likely to end the bull market dead in its tracks, what is most likely to bring down the monetary system and smash the hegemony of the centralised nation state into a thousand tiny anarchic pieces is essentially an accounting error in computer software.

Absurd!

Because all modern civilisations are interconnected, all depend upon the same system to keep track of the debits and credits both monetary and human. Who owes what to whom is the motto emblematic of our current culture. If this elaborate accounting system is interrupted or worse, begins to spew out corrupted data into the wider interconnected network the entire basis of our civilization goes into crisis. Who owes what to whom becomes harder to track, to prove, to measure, to collect, to verify. Without a mutually agreed upon method of verification, the whole house comes crashing down, not in a flash or a boom but in a whimper of confusion, disagreement and contractual crisis.

Don't believe me?

The next time you travel by road and find yourself on a large 4 lane motorway snarled in an hour long 1mph travel jam, all because only 1 lane is blocked, the result of a stalled car you begin to get the picture. Our western monetary and political society depends upon the very lucky and highly unusual situation that all lanes remain open for virtually all of the time. No systemic disruptions can be tolerated or the patient arrests immediately. The year 2000 date recognition problem is nothing if not a systemic disruption, so quiet, so obvious and so critical that most in authority either dimiss it out of hand as "no big deal, we have plenty of time to fix it" or they are denying it even has the potential to tie up the freeway.

This is the arrogance emblematic of a politically saturated ruling elite, technologically illiterate and deeply suspicious of the machines they count upon to keep them in power and orderly maintain the societies they rule; in short, a civilization almost out of time at the end of the line.

Forget about the spectacular, it is invariably the quiet, silent killer that ultimately finishes the job.

Believe it!

China is poised to become world's biggest gold consumer.