Oops, There Goes Gravity!

[Every once in a while an artist creates a work which weaves a mix of emotions that mimic the real emotions of people in everyday life. Such a work might even become a "classic" if the work is upbeat and tells a simple story. The most powerful story of all is likely one in which an individual overcomes "all odds", especially his personal fears, to accomplish something important for himself. I believe that Eminem has achieved the above in his song, "Lose Yourself." In many ways his song tells of the gut wrenching emotional ride of a Gold Bug. I believe that every Gold Bug needs a copy this song to remind him of who he is and of where this trip might end. Be careful of the Gold and Silver Bull, or you might just "Lose Yourself!"]

I believe the question is a very pertinent one for Precious Metals investors at this moment in time. Will you just let it slip? I believe Mr. Livermore had a thing to say which might just answer the question. He has been quoted as saying in regards to a Gold Bull Market, "Get right, and sit tight!"……….or, will you just let it slip?

So, just where might we be in this Gold Bull market at this time? I believe the answer to that question depends on which part of the Gold Bull you are riding. With the big run-up by Gold, the metal, one might say, "Oops, there goes gravity!" Yet, if one is holding mostly PM stocks, I suspect the emotion might be more of regurgitating spaghetti down one's shirt, seeing how many PM stocks are still 70 to 90% off their 2003 highs. So, which emotion is telling us the truth?

In the midst of some very warm, spirited, and productive discussions over just this issue at the GOLD-EAGLE Forum, I believe that we might have found an inkling of what may be. Those discussions involved the "HUI fractal work" I have presented in these editorials, along with all of the related trimmings. Those trimmings have included (if adjusted for "degree") similar TA indicators, similar HUI:USB charts, similar pitchfork relationships, similar time frames for both fractals, similar angled support and resistance lines, similar HUI price chart formations, similar fib. relationships, and I am not sure how many other things we have examined that might have slipped my mind. Please disregard my loose use of the word "similar" since the above trimmings appear to be almost "exact." At the same time, there does appear to be one "fly in the ointment" since the HUI did not make a big run along with Gold at this recent similar point in the second fractal. Is that a major problem for the PM stocks, and thus the fractal………or is it a good reason to "just let it slip?" I don't think so…..for it is only a little fly.

The above Gold chart shows the rapid rise in price which recently occurred. This aggressive upward move in Gold is actually very important since Gold decisively blew through "the line in the sand" represented by the thick red line. You can see the myriad of resistance lines that Gold had to bust through at this important juncture. Now, all of those resistance lines represent support for the price of Gold. Will Gold continue up from here after it has already risen to the top of the trend channel? Would a correction and a re-test cause more pain for the HUI index?

It is possible for Gold to go higher, to move back to a double top, or to re-test the previous break-out point. It is hard to imagine such an important line as the "line in the sand", not being retested. If that area is to be tested, I'd expect the retest to be fairly fleeting as momentum players come into the market to accumulate Gold. The target of such a retest might likely be the band of resistance which I would suggest lies from $460 to $480, with $470 to $480 being the most likely stopping point. Though Gold does not necessarily need to re-test that area, I suspect the test will come, but in a fleeting way with new highs in Gold possibly to the $640 area to be seen in 2006. This still leaves the question, "How would such a re-test affect the PM stocks?"

The chart of the HUI: Gold ratio has just displayed a break-out this last week. This is a rather dramatic break since price has broken out of a very large flag formation that has been developing since late 2003. This move clearly stands out as a "well thumb" for the future of the HUI.

Silver remains in our tight little channel and looks to have bottomed at angular resistance. Silver usually lags Gold, and we still maintain our $11.87 target for the next few months.

Some very savvy Gold people have suggested for a very long time that PM investors would not be around when the really big moves in the PM complex got underway. Why would that be so? Well, the only thing I can think of is for one to "Lose Yourself" in the heat of emotions that come with a true momentum Gold Bull Market such as this. I think Eminem nailed those emotions in his song. You see? His song character could have easily quit somewhere between the panic of emotions and physical regurgitation, but he did not. Will you?

In the above chart of the HUI Index, I have laid out all of the lines of resistance and support, the similar Fibs., and the similar target for this run out of what we have called "Fractal 2." I would suggest that many of the teachings of some incredible mind, called Gann, are all present in this chart……assuming one relates the two fractals at proper "degree." I'll make no comments, today, about this chart except to say that I believe there are two possible paths going forward. The HUI might just take off for our next upside target this week. Or, the HUI might retest the 240-ish level, then take off toward our next upside target over the next couple of weeks. I could not find an hourly chart of the late 01/ early 02 periods of the HUI to look for the exact answer. If I had to pick one, I'd pick "up this week."

More importantly, why is it that the HUI Index as a proxy for PM stocks might have such a move at this time? Sure, Gold could go higher, yet, but one might have expected the HUI Index to have already taken off like a rocket. This is not an easy question to answer and involved some extensive discussions on the Gold-Eagle Forum this week, but let me give it a shot.

It might not matter that Gold has spiked up to $540. What might matter more for the HUI is that Gold has aggressively broken through "Falcor's line in the sand" which signals a much higher price for Gold…… a new and higher average price for Gold for possibly a very long time. Should Gold eventually retrace to the price band of $470 to $480, the momentum traders will come back in to "buy the break-out dip." IMO, the party is over. It is only a matter of time before proven ounces in the ground must be revaluated, upward. It is only a matter of time before the increased average price of gold flows to the bottom line of producers. It is only a matter of time before Gold continues its trek higher at a much more aggressive rate as the "March Toward A Parabola" becomes the parabolic move, itself. The above factoids regarding Gold certainly do not seem to be lost on one of the greatest Gold Miners, Mr. McEwen, as he seems to want to buy the whole Cortez Trend. Maybe we will have to coin a new phrase for Mac……."The Cortez Trend is your friend!"

I would suggest that the fundamentals for the PM stocks changed significantly when Gold busted through the "line in the sand." The PM stocks will likely, "Follow The Yellow Brick Road" to higher levels. In fact, I read somewhere this weekend that Funds are now starting to buy PM stocks since they have decided that they need to have exposure to Gold. The gist was that they are going to buy a 5% holding. Do you have any idea of just what that 5% can mean to the PM stocks in terms of a rise in price? Can you say, "Wave III!?" Or, as Eminem has so eloquently stated......Oops, there goes gravity!

I would like to extend my wishes for everyone to have a great Holiday Season. If we are correct in our expectations for the HUI Index, it would certainly be a good first step toward a Merry Christmas for PM stock investors. The link for the GOLD-EAGLE Forum can be found, below

www.gold-eagle.com/cgi-bin/gn/get/forum.html

A VERY MERRY CHRISTMAS TO ALL………….

Again, I'd like to thank all of the posters at the Gold-Eagle Forum for their daily input. This thank you is especially extended to TQ and to Grininbarrett. Special thanks go to Dr. Vronsky and Westerman for creating the Gold-Eagle site and for editing my work. A very special "Congratulations" go out to Dr. Vronsky and Westerman after GOLD-EAGLE saw its hit counter ring up 204 million this last week.

Thanks also go out to CaptainHook and David Petch of TreasureChests since I have learned so much from them. They can be found at www.treasurechests.info/index.php

There are many great editorials that can be found on the GOLD-EAGLE site at the following link. www.gold-eagle.com/research/petchndx.html

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