From newgurusGold And Gold Stocks - Any Life Left? Part 1
Wednesday, November 27, 2002 - viewed 11 times
by: Robert McAllister. Article Number 6979
As the gold market nears the end of it’s two year bull rally how far can it go and what does that mean short and longer term. The excitement of earlier this year has been replaced by “Oh not again”. But in fact the technical indicators are now saying yes again. First the good news Gold put in a key daily reversal on Friday and this implies a solid retest of the $325 to $330 level over the next few weeks. Since this would be the fourth attempt this would imply that gold will move above the key resistance level and move to the next key resistance level. Unfortunately all key momentum indicators point to this being it’s last major move higher for this two year bull advance.
This pending move higher is a classic text book example of a major bearish technical divergence. Investors who only follow price will be sucked into buying near the top. The last high in an advance is always done on weaker momentum even though a higher price usually results. This next move in Gold looks to take gold to the $340 to $360 level with good resistance in the $353 to $356 area. After that gold should give back most or all of it’s gains from the last two years in the ensuing bear market before building a solid base to move forward from down the road. The gold market is the classic example of a parabolic market that has gone from bull to bear and continues to unwind the excesses of the past. Since it’s top in 1980 gold has had a very consistent pattern of 5 years down followed by two to three years up. 2003 will be the third year of the current leg up.
Under parabolic market parameters the complete bull market advance is usually retraced. The parabolic leg of the gold market started from a base built up from 1975 to 1978 around the $180 to $200 level. This would imply that gold should fall back to this level before the bear market is finally over for gold. In the three down trends after the past bear market rallies gold has fallen from $175 to $200 per oz from the rally tops. With this pending rally due to run out around the $360 level a fall of $175 to $200 would bring the next leg down in gold back to under $200 and complete the parabolic bear market in gold setting the stage for a new bull market in gold.