Jay Taylor on Gold

July 18, 2004

GOLD

Trader Rog Predicts $502.30 Gold by December 2004

Trader Rog has provided the following technical analysis on the gold bullion market. Trader Rog (Roger Wiegand) has agreed to provided a weekly commentary on market movements in this weekly message. The following views expressed are not necessarily those of Taylor Hard Money Advisors, Inc. the publisher of J Taylor's Gold & Technology Stocks.

Gold investors have enjoyed some terrific rallies the past few months, but have been disappointed recently as a profit-taking sell-off took away the party. Since it's been several years since we last had fun with gold, I wanted to suggest some trading and investing ideas along with rules and expectations.

The gold rally has been underway since the spring of 2001. Like any other bull trading trend, we have seen little corrections, but the longer up-trend remains intact. If you check the monthly ten-year gold chart, an obvious "cup and handle" formation is drawn. Historically, this pattern is a precursor to a vigorous follow-on rally. Our longer gold chart from 1970 shows another cup and handle of major proportions from 1980 through 1986. At the end of 1986, we see the handle. For 1987, the gold trend continues up after the 1987 handle is formed. My analysis suggests this is where we are today.

If you overlay 2004 market action on top of 1987, we are watching a repeat performance, within certain boundaries. While the price of gold in 1987 was slightly higher than today's comparison, the chart trends are the same. Move back ten years to 1977-1980, and you will see similar indicators on an even larger rally. Initially, while comparing the components of both time frames and rallies, the question becomes, "Is 2004 more like 1987 or 1977?" When other factors are considered-like stocks, bonds, and currencies-to me, it's a 1987 rerun taking us to gold $502.3 by December 2004. Bad geopolitical news could accelerate the timing, but the trend should stay the same.

Another test of our theory is the weekly gold chart. My last weekly dated July 9, 2004, shows a typical five-wave up-pattern starting in April of 2003 and ending in December of 2003. Next, we see a standard, a-b-c corrective pattern complete and move into the wave one of a new projected five wave up-trend. Today, July 14, 2004, this one-wave up-trend continues, to potential $418 top, and then should reverse back to $393.50 support for wave two. Considering our calendar and the projected waves, our wave two down-correction should complete next month, in August, base for a few days and then begin the wave three march toward gold $502.

While no one can predict gold prices for the rest of 2004, the trends remain in place. Further, many powerful outside indicators support this theory, causing me to be comfortable in these projections. Comparing the 1987 market action with our projections, we predict gold $429-August, $453-September, $475-October, $485-November, and $502.3-December (1987's high). Usually, you do not predict this tight, but I'm comparing 1987 history.

December gold options should exit no later than November 1. Expect profit-taking in late November and choppy action through the holidays to the second week of January 2005, when the up-trend resumes. We advise against gold futures, but suggest gold stocks, gold stock options, and risk capital for flyer gold junior stocks with entries very soon. The August-November gold seasonal rally is historically, the big guy for the year. It times with the wave three up-trend, which is always the largest of the five. Don't bet against the futures pits, but buy and hold through this wave rally. Most important of all, when you make some strong gains, exit and watch for the next excitement. You have three decisions: long, short, and out of the market. Happy Trading, Trader Rog.

In the course of your work, you will from time to time, encounter the situation where the facts and the theory do not coincide. In such circumstances, young gentlemen, it is my earnest advice to respect the facts. - Igor Stravinsky.

In the precious metals community, we hear almost daily about who is selling gold; central banks, the Plunge Protection Team, pit traders, Wall Street brokerage houses, investment banks, mutual funds, foreign traders fronting for governments, and even some hedge funds. After you read the chart tracks, and turn on the fan blowing away all the smoke and nonsense, take a look for a moment and see who believes in a precious metals rally:

1.Folks who track warehouse bullion movements and compare shipping receipts with inventory reports, say the numbers don't jive and most "claimed" warehouse gold is gone. Those who claim otherwise will not permit on-site inspections or audits, save for a few. Guess why. They either leased it, sold it, or stole it.

2.The following governments or "significant individuals or groups" are all involved in manufacturing or trading gold and silver. Some have plans in the works, others are in action right now. The international Muslim community, which is a significant portion of the world's population, is, and has begun to manufacture and distribute the gold Dinar, which they hope to designate their "common" currency in several countries throughout the world.

3.China, the world's most populated nation, has legalized gold trading. Markets are springing up in Hong Kong, Shanghai, and Singapore. Indonesia-Malaysia, (highest Muslim population in the world) is now circulating the gold Dinar.

4.India, with a population of over 600 million, is the largest user of gold for personal savings, usually in the form of gold jewelry, which adorns all the females who can afford it. Instead of putting cash in the bank, they buy the gold and wear it. They are the bank. A virtual living, walking savings account.

5.Europeans, at the least the older crowd, clearly remember how family members were saved from wartime repression by running away with a handful of gold coins and the clothes on their backs, leaving everything else to be seized.

6.Argentina and Brazil, along with other South American countries, have experienced many upheavals and inflations. They turn to gold, silver, and tradable goods, shunning valueless paper currencies. Expatriate Miami Cubans exited Castro's mess back in the 1960s, taking gold to Miami to begin a new life. Exiting early meant a new start.

7.Look at the millions and billions of new investments in mines and the mining industry to seek precious and base metals. This is smart money, fulfilling a need for gold, silver, platinum and other metals. Generally, the industry lead-time to begin mining takes several years and millions of dollars. Experienced managers will not start these projects without hope of sales. Canadian and Australian mining are major components of GDP. All are expanding today.

8.George Soros owns a gold mine and most of a silver mine. Warren Buffet owns a huge silver bullion position. Bill Gates owns precious metals stocks. Silver Standard Corporation, one of the world's largest silver companies, just purchased millions in silver bars for inventory and subsequent price increases.

9.Arab princes are reportedly moving to Los Angeles in droves to escape Middle Eastern violence, and buying gold.

"Any clod can have facts; having opinions is an art."-- Charles McCabe

10.Sales of gold and silver coins from Canada, United States, Austria, Switzerland, and Mexico are all up in value and rising faster. Mexico plans to manufacture an additional supply of silver coins for circulation, to run in parallel with the paper peso. This will become the currency of the common man in Mexico, as it is supremely trusted over paper pesos. Further, Mexico has the capacity to mine more silver than any other country. New silver mines will provide more badly needed employment. In Northern Idaho near Coeur D'Alene, in "silver country," the Sterling-a new, local silver souvenir coin-is being sold and circulated by the local mining companies for daily use as money. Since mining is the dominant industry here, the locals try to support and use the coins.

11.I think one of the most important facts to consider about gold and its value is the fact an old (unnamed here), world-renowned gold trading and money house, with history going back hundreds of years, resigned as a major player in London, being responsible for setting the daily spot price of gold for the market at large. This, to me, speaks volumes about where gold is going and what it will do. Observers say they are buying with both hands right now. I can't prove it, but I know you can't set the daily price for the public and be a rabid buyer at the same time.

12.I would suggest to you, and certainly could not prove it, that some of the biggest buyers of gold are also the current biggest sellers in the trading pits of New York. They are driving down the prices with one hand and buying it up cheap with the other. This is perfectly legal. Traders call them market makers. As observers of the precious metals industry, trading, and investing, we can all complain; but for the most part it's just trading. However, consider this: If everybody just kept buying and holding and didn't sell or buy on margin, where would the price go? How high is high? Watch out for the tidal wave of buyers behind you.

-- Trader Rog

The California Gold Rush began on January 24, 1848 when gold was found by James W. Marshall at Sutter's Mill in Coloma.