Steve Quayle News Alerts

March 21, 2003

Was up late last night looking at the implications of the plunging oil price, and I came across a very gold bullish discovery. The last time that oil plunged was into last November. Gold had already consolidated. Once oil started to consolidate and turn higher, gold took off like a rocket, and it looks like the same thing is about to happen again.

How can I say that with any degree of certainty? Because it's the trend and 'the trend is your friend'. This trend was initiated around the middle '02 and was well established by the end of the end of the third quarter, as indicated below.

As you can see, when the Gold/Oil Ratio is at the top of the channel, both gold and oil are low, on a relative basis. Then when oil turns higher, as the ratio falls, indicating that oil is rising faster than gold, gold makes further gains. In other words, rising oil puts upward pressure on the the price of gold, and the gold market, being an anticipatory mechanism, senses this well ahead of time, usually peaking in price approximately one month ahead of the price of oil.

One thing that is not apparent on the above chart is that the intensity of the absolute price movements has been rising, and the rate of change within this cycle is even more intense than the November to February event. Therefore, I think you can expect quite a surge coming in the prices of both gold and oil, with gold leading the way by approximately a month, once oil bottoms, and turns higher. When will that be? Oil could go as low as $30, or, it could very well start right now, but based on the oil chart, it looks like the former, as $30 oil looks in the cards.

Good news no? I'm very happy I stumbled across this observation, as it will help us understand the bottoming action in the gold complex, currently coming to an end. Certainly, in relation to gold's trading characteristics over the past six years, gold remains quite bouyant, and may very well have already seen it's lows, in the form of a potential inverse head & shoulders formation.

And, if this is the case, and we take out resistance at $347, the 'restrictive gold bowl' will surely be penetrated, putting the POG within the grip of the massive 'slanted inverse head & shoulders pattern' on the long term chart.

When we breakout of the gold bowl, the price of gold will probably do something like this, below.

As indicated above, the PM stocks will surely participate in gold's ascent, however, it may be restricted initially, as the dynamics in the market will surely be anticipating a top below $425.

If this were to occur, the above projection would be negated, and we would engage in a five wave ascending triangle consolidation under 155 on the HUI, as outlined in David Petch's brilliant editorial, earlier this week. - Intermarket Analysis HUI, US Dollar and S&P 500 with Geopolitical Analysis

Again, notice his target for the HUI five to ten years out. Seem unrealistic to you? THAT's exactly why it will probably happen.

CAPTAINHOOK

Disclaimer: The above is personal opinion and should not be construed as investment advice. Do your own due diligence

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