Sorry 'bout that.
>>>A New Gold Bull Market Is Beginning Right in the
Midst of Global Deflation
Posted on Thursday, October 22, 1998 at 08:55 AM
by Dan Ascani
The Global Market Strategist
A new bull market in gold stocks is very likely beginning. A new bull market in
gold itself appears imminent, as would also be the case with the entire precious
metals complex if, in fact, this assessment is correct.
There is no need to again reiterate the many technical and fundamental reasons we
expect a precious metals and gold stock bull market. However, we can update the
situation as follows:
From a technical standpoint, gold has spent the entire year basing after 18 years of
bear market. That basing process is thus far successful, with last month's brief
break of the January low not significant and not seeing any follow-through selling.
If gold moves above the $317 area significantly, we can conclude that, after nine
months of testing, the long-term Fibonacci support level of $281 is, within a
normal margin for error, marking the end of the bear market. Additionally, we
have observed that historically, after a mega bull market in stocks ends and
deflation sets in, gold stocks typically begin a long-term secular bull market. The
last time this situation occurred was in 1930 when gold shares launched a
five-year bull market, the first nearly three years of it against the general
downtrend of the plunging bear market in stocks. Gold later bottomed in the midst
of the deflationary depression and launched a multi-year bull market of its own.
Although the fast-moving global environment in the late 20th century is much
different than that of the 1930s (especially in the fact that the world is no longer
on the gold standard as it was in the 1930s), a similar outlook for the metals and
gold stocks after years of washout appears in the cards as we have forecast.
Although we cannot rule out another round of gold weakness, it is so-far-so-good
for gold's prospects for launching a bull market. This will especially be true if, in
fact, the newest bull phase in gold shares is for real as we suspect. Its prospects
are perhaps enhanced when one considers a statistic released last year by a market
research organization: that the entire valuation of all the gold mining companies in
the world total less than the valuation the market places on one major blue chip
stock, Pfizer. This, anyone would certainly contend, is an extreme in sentiment
that can turn long bear markets into bull markets. Gold appears to have completed
a Five-Wave Elliott decline into the late August low, completing the minimum
requirements for the bear market from an Elliott Wave standpoint. Those familiar
with the esoteric details of the Wave Principle would recall that a Five-Wave
decline can extend into a larger one, though, and that is the possibility that would
take gold to lower levels, likely below $250 toward $225. However, this has not
yet occurred, and with the gold stock sector soaring against the bear market
downtrend in the general stock market, this possibility does not carry odds above
majority, in our opinion.
A significant move above $317 in spot gold is needed to break the market out and
confirm a new bull phase. As I have observed, a new bull market in gold could
take gold hundreds of dollars higher, depending on many variables. A movement
back to the gold standard by some or all countries of the integrated global
economy, for example, would lead to a reaccumulation of gold by world central
banks after years of dumping gold onto the market.
The XAU Gold/Silver Index is just beginning a bull market, as we have indicated
is likely. Fibonacci resistance levels along the way up are 74.00, 89.71, 101.81,
114.89, and 155.77, the latter of which is the 1996 peak. Even if this peak is not
exceeded, the gold stock sector, as measured by the XAU Index, is likely to triple
before the bull phase is complete. Bull markets of this type typically last years
and, as a result, this is a long-term outlook and buy recommendation.
Silver is under completely different fundamentals than gold, but is still scheduled
to participate in a multi-year bull market. Additionally, bull market or not in the
gold sector, silvers bearish Wave count from the early 1998 peak at $7.50 implies
another round of new lows, likely to the $4.15 area, before it is ready to embark
in a bull market.
Source: The Global Market Strategist, P.O. Box 5309, Gainesville, GA 30504.
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