Gold Prepares to Continue Bull Market After "Wave 4" Pullback

June 8, 2001

After its upward surge of late last month, the gold market was in correction mode last week - but not for long. The outside reversal that developed in the gold chart last week was simply a matter of "too much too soon." This is not the beginning of yet another big sell-off in gold; rather, it is merely a short-term pullback that should be nearing completion, if it has not already.

Gold seems to have found a strong immediate-term bottom around $266-$268.

This implies that gold could continue on with "wave 5" to the upside by the end of this week. The Elliott Wave configuration of the gold chart is strongly supportive of a developing 5-wave impulsive move with wave 5 still to come.Wave 5, suffice it to say, should be quite impressive if the preceding impulsive waves are any indication.

It was both amazing and heartening (from a contrarian perspective) to witness so much bearishness of opinion after gold and gold stocks declined the past week. The vast majority of comments-even from experienced gold analysts-was more or less along the lines of "gold and the XAU have begun a steep sell-off…sell your gold holdings!" This is extremely characteristic of an early bull market; in fact, the most widespread bearish opinions typically manifest in the early stages of a bull market rather than in the late stages of a bear market, as surprising as that may seem.

Our most recent analysis of the silver chart yields some interesting findings.Silver's 8-week, 12-week and 24-week cycles all bottom the week of May 21-25. This means the next few days will undoubtedly see a sinking silver price - witness the bearish two-day bar pattern on the daily silver futures chart. Even though these dominant short-term cycles are all due to bottom by the end of this week, hence a new bull cycle begins next week, the silver market will likely see overall sideways movement until late August. This is when the dominant longer-term cycles all bottom, viz., the 20-week, 40-week, 60-week and 120-week cycles (plus several smaller component cycles). That means silver's bull market probably won't begin until September.

Also, a "time wedge" in the daily silver chart points to this timeframe, which implies a reversal in time will take place then. Until then, expect the silver market to fluctuate in a lateral consolidation range between $4.35 and $4.65. Once this range is decisively broken, however, we can expect a quick move to either the $5.55/oz. level or the $6.15/oz. (based on the 300%-500% breakout rule). So while gold's dominant cycles have all bottomed, silver's have not.

Of interest to silver stock traders, Apex Silver Mines (SIL) is running a short-term cyclical configuration. Its chart pattern is strongly bullish and there is a consolidation (read accumulation) range between $8 and $10. This means traders can expect an upside move in Apex of between $6 and $10, when the stock finally breaks out (based on the 300%-500% breakout rule).

Noteworthy among silver mining stocks, Pan American Silver Corp. (PAAS) displays a splendid bowl-shaped accumulation pattern in its chart over a two-year period, punctuated with a double bottom between January and April of this year. PAAS has bottomed and is about to begin its ascent. Consider purchasing PAAS after its early July cycle bottom. Intermediate-term traders and investors may purchase now at current prices.

From a long-term perspective, we are entering a time frame in which falling equities prices (excepting mining stocks) and interest rates will collapse, while commodities prices (particularly precious metals) will steadily advance. This is attributable mainly to the confluence of the 55-year Kondratieff Cycle, or K-wave, and the 60-year primary financial cycle, as well as the 120-year "Master Cycle," all of which are scheduled to converge between the years 2004 and 2014. During this time the major currencies and stock markets of the world will collapse as the ultimate long-term store of value-gold-will once again come to be recognized by the masses of investors as the only worthwhile monetary investment.

Paul Burton, editor of the monthly World Gold Report has released the top mines for the Year 2000. We quote from Mr. Burton's report, as it holds many valuable clues as to which mining companies we can expect to perform well in the year ahead:

"Open pit mines dominate the table of the world's largest gold mines. The four highest ranked mines, in terms of gold produced in 2000, are all surface excavations working gold deposits in such diverse climatic and topographical settings as the mountainous jungle of Indonesia, the high rolling plains at 4,300 m in the Andes, the frozen wastes of Uzbekistan and the arid desert of the U.S.'s Nevada state.

"The first underground mine to enter the ranks is South Africa's Driefontein, which is the fifth largest mine in the world.

"Grasberg maintained its number one spot in 2000 despite a fall in production of 21%, or 630,000 oz. In 1999 the open-pit mine produced close to 3.0 Moz. [million ounces]. The reason for the decline in production was a drop off in gold grade from 1.37 g/t to 1.10 g/t.

"Yanacocha had another sparkling year with its production rising 9%. Yanacocha is expanding operations further through the development of the La Quinua mine.

"Muruntau, nominally the third largest mine, is owned and operated by the state-controlled Kyzylkumredmetzoloto. Accurate production figures are difficult to obtain but indications are that production is in the range of 1.77-1.93 Moz. At the moment so it may justifiably claim to be the second largest producer.

"Barrick Gold's Betze-Post open pit at Carlin, in Nevada, raised its production by over 0.5 Moz., equivalent to 46%, as the commissioning of the new roaster in mid-2000 increased mill throughput. Output also benefited from an 8% improvement in average grade.

"Nevada's status as a production center to rival South Africa's Withwatersrand Basin is confirmed by the presence of two Newmont Mining operations and the Cortez joint venture alongside Goldstrike in the world's top ten. [Newmont's] Twin Creeks production jumped by 431,000 oz., or 46%, as high-grade sulphide ore from its Deep Post was processed through autoclaves. Like Goldstrike there is a real case for considering Newmont's complex of open-pit and underground mines and autoclaves, roasters and leach plants at Carlin, Twin Creeks and Lone Tree (production of 487,000 oz. in 2000) as one unit. In this case Newmont's 'Carlin' operations produced an aggregate 3.2 Moz., making it the world's largest producer."

Other mines to top the list include Gold Fields' "Kloof" mine in South Africa (#8), Placer Dome/Rio Tinto's "Cortez" mine in the U.S. (#9), AngloGold's "Great Noligwa" mine in South Africa (#10), Placer Dome's "Porgera" mine in Papua New Guinea (#11), Harmony's "Randfontein" mine in South Africa (#12), and Barrick Gold's "Pierina" mine in Peru and "Meikle" mine in the U.S. (#13 and #14, respectively).

Clif Droke is the editor of the three times weekly Momentum Strategies Report newsletter, published since 1997, which covers U.S. equity markets and various stock sectors, natural resources, money supply and bank credit trends, the dollar and the U.S. economy.  The forecasts are made using a unique proprietary blend of analytical methods involving cycles, internal momentum and moving average systems, as well as investor sentiment.  He is also the author of numerous books, including “2014: America’s Date With Destiny.” You can view all of Clif's books here. For more information visit www.clifdroke.com.

Throughout history the ruling class has always sought to own gold and silver because they represent purity and longevity.

Gold Eagle twitter                Like Gold Eagle on Facebook