Gold Bull Market Commentary - January 2, 2004

Special Update - January 5, 2004

"We will hazard a guess that we will know whether Gold is going to smash through its 1996 highs or correct from present levels in the very near future, quite likely by this time next week. Stay tuned."
(The Gold Bull Market This Week - Jan. 2, 2004 - see below)

We didn't have to wait a week. On Monday, January 5, 2004, spot future Gold on the Comex rose $US 8.70 to close at $US 424.80. This is exactly $US 10.10 above the TOP of Gold's previous bull market - $US 414.70 (on a spot future closing basis) on February 2, 1996.

The spot future Gold close of $US 424.80 on January 5 is the highest since spot future Gold closed at $US 427.00 on December 6, 1988. Gold's 1996 bull market high has been decisively breached. The potential for an upside acceleration from here has increased dramatically.

"As already stated, the break above $US 400 is not yet decisive, but a challenge of the previous bull market top of $US 414 is far more likely over the rest of this year than another test of $US 400."
(The Gold Bull Market - December 19)

The spot future close of $US 417.20 on December 30 is $US 2.50 above the $US 414.70 spot future close of February 2, 1996 which marked the top of the previous bull market. The intraday high of $US 418.40 on December 30 is $US 1.70 above the $US 416.70 intraday high of February 2, 1996 which marked the top of the previous bull market. Gold is right on the verge, but it has not yet DECISIVELY broken through the highs of the 1993-96 bull.

There has been no chance yet this year to further challenge those levels, with Comex metals trading closed on January 1 and 2, 2004. Gold is poised with the Dollar still falling. The first full trading week of 2004 which starts on January 5 will tell the immediate story.

Gold has now been trading between $US 409 and $US 418 on an intraday high basis ever since December 8. There is always resistance at previous notable market tops and what is now happening is evidence of that. The immediate question to be resolved is whether Gold can break through its 1996 highs without a correction, or whether it will indeed correct before the breakthrough occurs.

Any spot future close ABOVE $US 420 would be evidence that the breakthrough has occurred. Any close below $US 409-410 would be evidence that a correction is in progress. Should that correction occur, the next step is to see if the $US 400 level holds. Technically, it should.

Here are the relative performances of $US Gold, the $US Index, and the Dow since Gold broke above $US 300 to stay on March 27, 2002:

If you doubt that Gold's breaking back above the $US 300 barrier to stay in March 2002 was a "sea change" for world markets, a glance at the percentages in this table should settle the matter beyond all reasonable doubt.

And here we are, more than $US 100 (or 33%) higher. We are confident that the REAL breakthrough of $US 400, which will come with a break above $US 420, will be a much bigger "sea change" than breaking through $US 300 was.

Last week (December 29), for the first time since Gold's decisive break of $US 300 back in March 2002, the figure for the Dow was a "plus" figure. This week, as you can see from the above table, that figure has retreated back into the "minus" column, albeit just barely. Take a look at the gain of Gold over the exact same period and it's pretty easy to see which has been the superior investment vehicle.

On the daily bar chart, you can see the spurt upwards to equal the 1996 bull market high after the Christmas break. The two moving averages have been on an upwards railroad track ever since the short-term (10 day) average crossed back above the long-term (20 day) one back in late October.

On the weekly bar chart, the two almost identical intra day highs and spot future closing levels set over the weeks of December 8 - 12 and 15 - 19 have now been breached. You can also see on this chart that as Gold has approached and then reached its 1996 highs the weekly volatility has gone down - the weekly bars have become progressively smaller as the "spread" between the weekly high/low has contracted. Gold is battling with its LAST technical resistance level, the 1996 bull market (spot future closing) top of $US 414.70.

On the point and figure chart, distribution ABOVE $US 400 followed by a high break indicates pretty decisively that the $US 400 support level has held. We now have a breakaway gap on this chart, which is often an indicator of an acceleration in the near future.

Here's another perspective - a comparison between Gold's 2002 low and its present price and the $US index 2002 high and its present "price". All data is on CLOSING levels:

You will find charts of the $US index and Gold here for comparison.

We will hazard a guess that we will know whether Gold is going to smash through its 1996 highs or correct from present levels in the very near future, quite likely by this time next week. Stay tuned.