Kitco - Exclusive Commentaries

2002 Calgary Investment Conference features gold. Over 50 speakers and over 60 companies involved in both gold production and exploration will be participating. October 5 & 6. It's free to attend. Register at www.cambridgehouse.ca

Hello, let me introduce myself. My name is Dave Skarica and I'm the editor of Addicted to Profits. This is my first writing for www.kitco.com and I hope it will be the first of many.

My newsletter specializes in technical and psychological analysis of markets, trying to spot major trends before they occur. I have been very bullish on the gold stocks since mid-1999 and over the past year or so this has paid off handily. However, most of you do not care about what has occurred and you will want to know what the outlook is for the gold market. to discover and prove-up new deposits.

As just stated one of the methods our newsletter uses to determine what the future holds is technical analysis, which is the study of stock prices and charts. Technical Analysis in its purest form ignores the news and fundamentals and can often give you a better understanding of what is going to occur as it enables you too ignore the "noise" often heard on CNBC and in the rest of the financial media. In this article we will concentrate current technical outlook for gold bullion and gold stocks.

As we can see gold has been in a choppy downtrend, making a series of lower lows and lower highs since early June. The good news is the recent close above 318 dollars an ounce broke this trend. Gold is trading right at the downtrend line. It is our experience that when this type of choppy downtrend is broken the market or stock that breaks such a pattern usually explodes upwards.

The gold stocks have been leading the metal. This is often the case, for example during the short-term gold rally in 1999 gold stocks bottomed in the spring, where as gold did not bottom until early September 1999 before spiking later in September.

Gold stocks also lead the bullion when the current gold bull market began. Gold stocks bottomed in November 2000 yet gold did not bottom until the February-April time period of 2001. For some reason the gold equities seem to possess a life of their own and seem to be able to sense and predict upcoming moves in the gold bullion market.

The good news is that the gold stocks have already broken their downtrend lines. This tells us that gold bullion should soon do the same. Analysis of the HUI index (AMEX Gold Bug Index) is located below:

The good news is, if as they did in late 2000 and early 2001, gold stocks are leading the metal gold should also break its downtrend line and move higher, thus confirming the equities. However, a raging bull market is not certain yet. The warning I am giving to my subscribers is that gold experienced a very similar trading pattern last year. This being a top in the spring followed by a summer decline, which was then followed by a rally into September (influenced by the events of September 11th) and a decline into late November, which was followed by the real upside breakout in early 2002. We must be aware that this could occur again, and if it does we will be ready to buy on the dip later in the year.

However, due to the way the stocks and bullion are acting we feel gold will move upward during the third and fourth quarters of 2002.

In my newsletter I divide gold stocks into three categories Conservative, Moderate and High risk. Analysis of a few stocks in each category is located below:

Our belief is that gold and gold stocks should decline or flatten out over the extreme short-term (e.g. the next few days or week or two). However, I believe that this will just be a set up for the further gains which should occur over the coming months.