Get Ready for the Breakout

August 14, 2003
James Turk

I would like to preface my remarks with some disclosure. Nobody knows the future, but we do have opinions. Because I have been actively involved in the gold market for so many years, I am always asked for my opinion on gold, which I willingly give based on my knowledge and experience. Sometimes I'm right, and sometimes I'm wrong, which is the nature of markets. No one bats one thousand. Therefore, take this preface into consideration when you read the following.

Take a close look at the following chart, which presents the closing price of spot gold through today's Comex close.

I would like to draw your attention to the following items:

1. Note the huge saucer shaped bottom, which formed from 1997 through the end of 2002. This saucer was bounded on the upside by $325, the horizontal line on the chart. This saucer represents years of steady accumulation by strong hands who recognized that gold offered exceptional value at those low prices under $325 per ounce.

2. Further evidence that this saucer marks the bottom can be seen by looking closely at 1999. To provide some background, gold had been in a retreat since it broke below $380 in November 1996. The drop in prices from that level can be seen on the chart. You will recall that in May 1999 the Bank of England announced that it was dishoarding one-half of its gold, and the effect of this announcement can be seen on the chart. Gold tanked, and dropped to $252 in July 1999 when the BoE sales began. Ever hear the term 'selling climax'? A selling climax occurs when the 'weak hands' sell. Well, that is what occurred between May and July 1999. After holding their gold all the way down from the 1996 highs, the last of the weak hands dumped their gold, producing a selling climax. They let emotion rather than cold hard facts govern their decision, and this flurry of selling produced the climax. Gold has not been lower since.

3. One other important event occurred in 1999. In September gold rallied after the European central banks announced their intention to limit their annual sales of gold. Note how gold jumped up to overhead resistance in the Fall of 1999, all the way to the top of the saucer at $325.

4. Then in early 2001 gold's low in the $250's was tested. Importantly, support held, and for the first time since 1996, gold made a higher low. The buying power of strong hands was now greater than the selling pressure of weak hands. A new uptrend in gold was beginning.

5. From its low in the high $250's in early 2001 through the end of 2002, gold climbed steadily higher. The uptrend in gold during this period is made clear when gold climbed above its 200-day moving average, and then stayed there.

6. In December 2002, gold finally cleared resistance at $325. It took a long-time to do so, and you can see from the chart the 'pennant' pattern that gold formed during the last half of 2002. With this pennant pattern, gold was consolidating its gains from early 2001, and getting ready for the breakout above $325.

7. Once it broke out of the huge saucer base by moving above $325, gold earlier this year ran up into the $370's in one quick, essentially continuous upmove. After the peak, gold dropped back to touch $325, which proved to be a strong area of support, just as it should have according to normal technical analysis theory.

8. When looking back at gold's movements so far this year, we can see that another 'pennant' pattern has formed. The pennant gold has formed this year looks even stronger than the one formed last year. Gold is now approaching the end of the pennant, so it has to break one way or the other. Which way do you think gold will break?

My speculations are:

1. gold is about to break higher
2. it will break higher within the next few weeks, but the breakout could come anytime
3. gold will climb over $400 after the breakout, and probably touch as high as $435
4. most importantly, this breakout will signal that gold's bull market is alive and well

I'll end this alert the same way it began. There is no certainty to the future. The above is just my opinion, and only time will tell whether I am right or wrong. But I am ready if we do get an upside breakout. Are you?


Published by GoldMoney
Copyright © 2003. All rights reserved.
Edited by James Turk, alert@goldmoney.com

Freemarket Gold & Money Report
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