Gold Begins Preliminary Phase of Bull Market

March 2002 gold futures on the COMEX have given the preliminary signal that our forecasted 2002 gold bull market will shortly begin. The yellow metal hasn't looked this good in ages and the long-time gold bears will surely be confounded and sent back into hibernation before the first quarter is over.

While gold is definitely preparing to break above the benchmark $300 level within the next several weeks, a move that will flash the formal signal that the big swing is underway, gold futures likely won't make it much higher than $292-$294 in the next few days before pulling back. This is the area where the cycle channels converge and a pullback will definitely be warranted, perhaps even a steep correction to shake out the uncommitted longs and fool the bulls into giving up their positions. Not only will it take considerable energy for the market to move above recent overhead supply near $290 but the trading volume on gold's most recent up-move was not commensurate with the percentage gain in price.

Another consideration is that gold's dominant interim cycle doesn't formally bottom until around the middle of the month, which happens to coincide with the peak in the dominant trading cycle for the broad equities market. Thus, we will witness a peak in the stock market and a subsequent decline this month along with the beginning of yet another leg in gold's new bull market.

The latest Commitments of Traders Report was released on Friday from the CFTC. The latest figures show speculators net long the yellow metal at 29,044 contracts versus 16,610 short. This represents a decline in long positions from the previous week. Commercials were net short at 85,081 versus 53,566 long. The commercial long position showed an increase of 11,877 contracts. Some traders would undoubtedly view this data as bearish. Actually, just the opposite is the case since the commercial position is the most important of the two and the data show commercials increasing their longs from a rate of change standpoint while speculators are decreasing theirs. This is developing into the perfect scenario for a strong follow-through rally in gold in coming weeks.

Gold's dominant short-term, intermediate-term and long-term cycle channels have all turned up. All but one final layer of immediate supply has been absorbed by buyers. The most important moving averages and technical indicators are all turning up. These factors have conspired to ensure a powerful year for gold and gold mining stocks.

The XAU mining index has already cut through all of the confining layers of supply that held it back in 2001 and has launched the first leg of its developing bull market, peaking last week near $64. The XAU is due a pullback from current levels, after which time a resumption to above $64 will commence later in the month. The XAU daily chart shows a prominent head and shoulders reversal pattern between $50-$57, where most of the supply was absorbed in recent months. This will serve as an excellent base of support for the XAU's price run.

Favored junior mine Durban Deep (DROOY) is also very near a pullback from its recent highs at $2/share. After a brief correction, Durban should then continue its upswing to slightly above $2.25 before its next correction. Durban's priceline is forming a classic bowl-shaped curve, indicative of significantly higher prices in coming months. This bull move in Durban began from an impressive base of accumulation and will continue higher in the first half of 2002, absorbing supply along the way and clearing the path for a nice long bull run. Durban's cycle channels have all aligned on the upside, which shows in graphic form that Durban's dominant trading cycles have all bottomed and are now in the ascending phase.

Several leading gold stocks reached their short-term peaks last week, but one that still has nice upside potential even in coming days is Gold Fields (GOLD). Gold fields has one of the most bullish charts in the entire mining sector for a low-priced stock. Significant accumulation took place between $4.50-$5 and based on the Gann Rule of Vibration there is upside potential to $7.50 before the next significant correction takes place. Gold Field's cycle channels are all lined up at a steep angle for months to come.

The following precious metals mutual funds have led the way so far in 2002 and should continue to be top performers throughout the year: First Eagle SoGen Gold (+19.3%), U.S. Global Investors World Gold Fund (+19.3%), U.S. Global Investors Gold Shares (+18.2%), Tocqueville Gold (+18.0%), Evergreen Precious Metals I (+16.7%), Van Eck International Investors Gold A (+16.0%), Gabelli Gold (+15.6%), American Century Global Gold (+15.5%), Rydex Precious Metals Fund (+15.3%).