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Updated @ 7:00 p.m. EST, Tuesday, February 25, 2003.


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SUMMARY:   My current outlook for gold and gold mining shares has improved to MODERATELY BEARISH, due to the recent sharp drop in the price of gold, leaving less of the decline remaining to be experienced.  Gold touched $390.50 spot at 4:07:38 a.m. EST on Wednesday, February 5, 2003, its highest level since August 29, 1996.   The weekly Market Vane reading had shown bullish sentiment toward gold at 89% on two consecutive weeks in the first half of February 2003, a new all-time weekly record.  The daily Market Vane showed gold at 90% bullish on several trading days.  This has since declined to about 64% bulls.  The traders’ commitments for Comex gold futures showed commercials at their early February 2003 peak long 35,779, short 162,826, for a net short reading of 127,047, its most extreme bearish posture since 1981.  In recent weeks, gold shares have continued to markedly underperform gold bullion, indicating that the decline is not yet complete.  Gold shares also have been showing very poor intraday performance, moving higher in the morning, then moving lower as the day progresses and professionals enter the market.  Once gold and its shares are approaching a true bottom, the shares will most likely consistently outperform the metal, and the intraday pattern will show the shares bottoming in the morning and moving higher as the day progresses, frequently making intraday double bottoms.  The pattern from 2002 shows gold shares bottoming first, then gold itself bottoming a week or two later as the shares make a modestly higher low.  This pattern is likely to continue in the upcoming nadir, which will probably occur over the next several weeks.  Even as gold itself continued higher at the end of 2002 and at the beginning of 2003, the HUI confirmed its strongly bearish pattern of lower highs, reaching 154.99 on June 4, 2002; 154.92 on January 6, 2003; 153.40 on January 27, 2003; and 150.77 on February 5, 2003.  In the longer run, HUI has made a long bullish sequence of higher lows, as follows:  35.41 on November 20, 2000; 47.45 on April 2, 2001; 59.86 on November 26, 2001; 79.84 on March 8, 2002; 92.82 on July 26, 2002; 102.99 on October 10, 2002; and 112.66 on November 22, 2002.  This is among the most bullish long-term chart patterns evident in the financial markets over the past three years.  The July 2002 lows must hold to the upside for the overall bullish pattern to remain intact; it is likely that the October and/or November 2002 lows will also hold, but it is less certain.  Already some shares have broken below their October/November 2002 support levels.  It is likely that when HUI breaks below and then fails to regain its 200-day moving average, which is only about 2% below its current price, that there will be a short-term collapse in gold mining share prices.  As chartists exit and pessimism reigns, that will be the time to be heavily buying.  Diehard long-term goldbugs are unlikely to panic at the upcoming bottom, but they have convinced numerous family and friends over the past year or so to sell general equities and purchase gold shares.  These newcomers have no conviction toward the sector and are likely to bail out en masse when the going gets rough, as they have already had to suffer several consecutive weeks or months of high-volatility disappointment, and are psychologically eager for an excuse to surrender.  They will also likely be painfully observing a rally in the overall stock market which they fled sometime around October 2002, and will find any reason to get back into the Nasdaq and S&P 500, even as they once again buy near the top of those markets.   Always take the opposite side of these poorly informed, invariably beaten folks.  When purchasing any securities, gold mining or otherwise, avoid buying on margin and never purchase call options, so that the magnitude of the eventual gain is the only important issue, rather than the vagaries of precise timing or interim volatility. Always stick with companies that have strong, growing earnings; avoid companies with losses. Occasionally a money-losing company will suddenly turn around and become profitable, but that is the rare exception.

I will attempt to give an unbiased outlook on the intermediate-term prospects for worldwide gold mining shares and other assets, based upon a collection of the most important fundamental and technical indicators. The objective will be to indicate critical turning points in the market. The indicators are listed in order of importance, most important first. Information in boldface has been recently updated.

Be sure to read (or attend) Eugene Ionesco's fabulous play RHINOCEROS.  If you do not understand it, or you understand it but sympathize with the beasts, you will have difficulty making money in the financial markets, as you will find it psychologically taxing to run in the opposite direction of the herd.

KAPLAN’S CORNER:  QUESTION:  How will you know when gold and its shares have bottomed?  ANSWER:  Notice that during the bull market in gold shares since October 2000, when any important intermediate-term nadir occurs for gold and its shares, the spread between spot gold and the HUI is close to 210.  A week or two later, gold itself declines an additional few percent, but the gold shares make a higher low, with the spread between spot gold and the HUI around 200.  This is likely to happen over the next several weeks as the next key bottom is formed.  Also notice that when a true low point in gold shares is being completed, most share prices will collapse into the open and bottom early in the morning, then rebound significantly by the end of the trading day, even as gold itself closes near its intraday lows.  American and Canadian senior producers often bottom first, followed by juniors, and then finally South African shares which usually bottom last, so purchases should be made rotationally, to try to take advantage of the cheapest prices available for each of these categories.  Buying should be accelerated whenever it becomes increasingly obvious that previously touched lows are unlikely to be revisited, as failed attempts to set a deeper bottom often shortly precede a sharp move higher.  If gold shares consistently outperform gold bullion, and seniors hold up better than juniors in declines, then accelerate the buying.  If gold shares repeatedly bottom early in the day and rally in the late afternoon, also step up the magnitude of the buying.  Notice that exactly the opposite behavior is currently occurring, which is why continued deterioration in gold mining share prices is likely in the near future.  Also watch the commitments and Market Vane.  Commercials should be at least close to net neutral at the next bottom, if not outright net long, while Market Vane should show bullish sentiment toward gold below 50%.

January 6, 2003:  QUESTION:  How low are gold and gold mining shares likely to go, and when?  ANSWER:  Gold first peaked on June 4, 2002 and then again on September 24, 2002, which is a separation of 112 calendar days.  If today was the recent zenith for gold, that would be 104 calendar days since the previous high.  Switching to the lows, they occurred on August 1, 2002 ($298 spot) and October 24, 2002 ($309 spot).  If the price at which commercials are net neutral (and which really represents the true price of gold) is rising roughly three dollars per month, and we know that commercials were just about exactly net neutral on August 1, 2002, then in February or March 2003, it is likely that commercials will be net neutral near $320 spot.  Since commercials have not gone net long in some time, it is likely to happen following the peak of greatest bullishness, which probably just occurred.  Therefore, the gold price will probably bottom between $311 and $317 spot.  XAU will likely be near 63, GOX close to 52, and HUI around 116.  One sign that both gold and its shares are close to a bottom will be when ABX and PDG either decline very slightly or actually rise over a period of several days, while HUI and the juniors, as well as gold itself, are still dropping in price.  As for the exact date, pick your favorite one in late February or early March.  Perhaps ABX will bottom in the middle of February, while gold mining shares in general will make their lows in late February, and the yellow metal itself will have a final nadir in early March 2003.

December 19, 2002:  QUESTION:  Isn’t gold in a long-term bull market?  Why are you bearish on gold if that is the case?  ANSWER:  The gold market now is very similar to the stock market in the summer of 1987.  In 1982, U.S. equities finally ended their bear market which had started in 1966.  By 1987, the stock market was clearly in an uptrend.  The U.S. economy continued to improve throughout 1987, both before and after the sharp stock market correction.  Similarly, the fundamentals for gold, such as negative real returns from time deposits, potentially higher inflation, and a weak equity market, will likely continue to improve.   In 1987 there were no day traders; very little 401K money was in the market; there was limited public participation in the rally.  Still, it became euphoric all the same.  It was in many ways analogous to the gold market today, having enjoyed an upward trend after a very long downward period.  Also similar to the gold market, the short-term condition became strongly overbought, with noticeable negative divergences, as the 30-year Treasury yield soared above 10% in the summer of 1987.  Finally, some block of savvy investors couldn’t resist the incredibly oversold government bond market and switched from equities into Treasuries, eventually triggering a sharp correction in equities.  Similarly, the current extreme short position by gold commercials, and the simultaneous clearing out of the remaining speculator short positions, should lead to a sharp correction in gold in the very near future, probably having started late last night, and likely continuing through the early months of 2003.

December 16, 2002:  QUESTION:  What would it take for you to turn bullish on gold and its shares?  ANSWER:  I am primarily looking for commercials to go at least slightly net long COMEX gold futures, as they did in December 2001.  As long as there remains a concentration of stale speculator long positions, there also remains the accompanying risk of a sharp drop in the price of gold as a cascade of sell stops are triggered, and these longs are flushed out.  Commercials are currently at an unusually extreme net short position, so caution is advised at the present time.  Once these stale longs are gone, there will be no technical impediment to a rally.  In addition, such a decline in the gold price will likely be accompanied by the essential skepticism toward any financial asset that often marks a good buying point.

November 11, 2002:  QUESTION:  Is there any significance to the spread between the XAU and the current spot gold price, or between the HUI and the current spot gold price?  What about the ratios between XAU/spot gold or HUI/spot gold?  ANSWER:  For many years, a widening of the spread between XAU and the spot gold price has led to a lower price for both gold and gold mining shares. Over the past three consecutive trading days, the gold price has risen while XAU has declined.  Usually, if this happens three times in a row, and often if it happens only twice, while both gold and gold mining shares had been previously rallying for some time, it generally indicates that a decline in the price of gold is about to occur.  Currently the spread between XAU and spot gold is about 254, which is above average for the current gold price, and probably means that a drop is imminent.  Conversely, when gold shares have been declining for some time and are about to reverse higher, this spread often contracts to about 240, as was observed on August 1.  I have not found the ratios to be as useful as a predictive tool.  The spread between HUI and the spot gold price is also not that useful.  However, the ratio between XAU and HUI does have some meaning, though not as much as the XAU/spot gold spread.  When the XAU/HUI ratio is noticeably below average, it means that seniors are underperforming, indicating overspeculation, and is usually bearish for gold and its shares; when it is significantly above average, it means that seniors are outperforming juniors, as often occurs at an intermediate-term bottom, and is therefore usually bullish.

September 19, 2002:  QUESTION:  Since you don’t like gold mining shares at this time, what would you recommend for purchase?  ANSWER:  Tobacco shares, although unpopular to some, represent solid value at current levels.  The dividends are high and the P/E ratios are low.  Technically, they appear to be tracing classic bottoming patterns.  Just as importantly, if we head into worldwide recession, as I am certain that we will, there will likely be no decrease in tobacco consumption.  Some investors remain concerned about litigation issues, but actually the current arrangement between the tobacco companies and the U.S. government has caused the 50 U.S. states which are receiving regular tobacco payments to rely on these payments, and therefore to essentially be silent partners of the tobacco manufacturers.  Confirmed smokers can evade the very high local taxes by purchasing cartons over the internet or from Indian reservations; I received such an advertisement today in e-mail, in spite of the fact that I don’t smoke.  The ban on many forms of advertising is also beneficial; it saves money.  There are not many businesses in which your competitors are not permitted to advertise, and in which new competitors have very significant bars to entry.  Besides tobacco stocks, utility shares still represent reasonable value for similar reasons:  high dividends, low P/E ratios, and little to lose from a prolonged recession.  Deregulation or not, it is difficult for a new utility company to start in someone’s garage.  These are not as undervalued as tobacco shares, but are a reasonable second-place choice.

August 6, 2002:  QUESTION:  What sector groups would you most and least recommend for current purchase and/or short sales?  ANSWER:  My favorite group to be long currently is utilities shares, which are traditionally known as the haven of widows and orphans.  With widows apparently dumping these shares in July (young orphans are not known for panic selling), they declined in price as much as the Nasdaq, even with their lower P/E ratios and dividends that averaged above seven percent at their recent lows.  As the U.S. economy slows and long-term capital gains become increasingly difficult to obtain, high dividends are gradually becoming the average investors’ favorite performance yardstick.  There is also a strong positive correlation between tight government regulation and stock price performance (see Philip Morris).  It is even possible that Congressional legislation will change the currently unfair treatment of dividends and tax them at the same rate as capital gains, which will cause these shares to soar [thanks to Scott Griff for this intriguing premise].  There is also likely to be a sharp rebound for other oversold equity groups, including especially telecom and pharmaceuticals and even those Nasdaq shares which have reasonable valuations.  As investors have piled into Treasuries and municipal bonds in recent weeks, these are likely to be the worst performing groups over the next several weeks, as long-term interest rates must always maintain a certain premium above the inflation rate, and these securities have become strongly overbought.  Over the long run, REITs and U.S. coastal real estate in general are likely to show declines which mirror the drop in the S&P 500.  Paradoxically, as the stock market has been going down, the average person who previously put money into both stocks and real estate has recently been putting money only into real estate, figuring that stocks can go both up and down (though before 2000 they figured stocks could only rise in price) but thinking that real estate can only go up (do people ever learn?).  The average investor, having lost money in the stock market, but having gained in the value of their house, perceives his or her overall financial situation as more or less breaking even.  It is quite likely that as the value of residential real estate collapses, as it inevitably does in a true bear market (see 1929-1934 or 1973-1978), ordinary Americans will perceive themselves as much poorer all around, having lost money in both the stock market for their anticipated retirement and in the value of their houses, and will sharply curtail their spending.  Falling real estate prices will therefore probably be the primary cause of the more severe stage of the U.S. recession that is closely approaching.  Caveat emptor.

July 31, 2002:  QUESTION:  I have recently raised cash with the intention of using the money to gradually purchase gold mining shares after they collapse.  What gold funds would you recommend?  ANSWER:  There are many gold funds which have received positive press over the past few months, given their strong rates of return (until recently, of course).  However, most gold funds charge enormous management fees, some as high as 6%.  Having studied the portfolios of these funds, there is no justification for their managers taking such a huge percentage of their investors’ hard-earned money; they do not opportunistically trade, have no idea how to sell short, or do anything at all that would justify this kind of legalized thievery.  My choice for best buy is the American Century Global Gold Fund, symbol BGEIX.  The management fee is only 0.68%.  There is a 1% redemption fee, but that applies only if the shares are held for less than 60 calendar days.  Investments and redemptions can be made at any time, in amounts as low as $50, without charge.  The fund’s holdings are roughly proportional to worldwide market capitalization.  They remain about 97.6% invested at all times.  William Martin has been continuously managing the fund since May 1, 1992; the fund itself has been around since August 17, 1988.  Telephone number:  (800) 345-2021.  I have not received any remuneration from this fund or any other consideration whatsoever for this recommendation; I am giving it only as a service to my readers.

July 9, 2002:  QUESTION:  What is the primary reason that the gold price is going to decline?  ANSWER:  Physical buying is one key to the gold price.  Now that the price in U.S. dollars is about 10% above its level of a year ago, jewelers and others who are well aware of gold’s volatility have reduced their buying, knowing that they will probably get another chance below $300 to accumulate inventory.  Indian buyers, the world’s most significant consumers, have had to deal with a falling rupee on top of the rising gold price, and are also quite price sensitive, so their physical buying has dropped substantially.  Seasonal factors often cause a dropoff in the summer months even when prices are low, so that at currently inflated levels, this decline is likely to be exaggerated.  On the investment front, it should be noted that small speculators have barely begun to reduce their net long positions.  From a timewise point of view, most of those noncommercials who are currently long COMEX gold futures have been holding these positions since May or even April, thus making them technically “stale.”  Stale speculator positions, long or short, are usually those which end up losing the most money, as the best noncommercial traders are early and nimble.  Since speculators by definition have no physical gold to deliver, they must use sell stops to protect against windfall losses.  It is a virtual certainty that tens of thousands of contracts have associated sell stops just below $300 in the August, October, and December months, so that once the price breaks below $300, these sell stops will trigger a new wave of speculative unloading of these stale long positions.  Given the reduced liquidity seen in the summertime, this speculative unloading could dominate the market in the short run.  Such selling will itself eventually cause disappointment among those who thought they had discovered the holy grail of investing, thus potentially triggering additional selling out of sheer disgust and/or additional stop loss points being hit.

June 11, 2002:  QUESTION:  How will one know when to purchase gold mining shares?  ANSWER:  When gold is in a long-term bear market, as it was from 1980 through 2000, commercials were generally heavily net long gold at all bottoms, and modestly short gold at all intermediate-term peaks.  Now gold is in a long-term bull market, so commercials will be heavily net short gold at all peaks, and modestly long gold at all intermediate-term bottoms.  (By the way, gold being in a bull market means only that as long as the 1999/2000 low of $252 per ounce and the 2000 nadir of HUI at 35.31 are not broken to the downside, gold and its shares are in a bull market.  Thus, if a decade from now, gold is at $290 and the HUI at 90, that would still qualify as a long-term bull market, even if not the one that most goldbugs have been anticipating.  My long-term outlook is not really so bleak as this might seem to imply, but that is beyond the scope of this question.)  Therefore, one should watch carefully to see when commercials go net neutral COMEX gold, as that will set up the next buy signal.  For example, in early December 2001, commercials briefly went net long about 13 thousand gold contracts.  This level is likely to be approximately repeated in the next bottom for gold and its shares.  Therefore, here is the winning strategy:  when commercials go net neutral COMEX gold, start buying gold mining shares.  For each increase in their net long position [thanks to Jim Termini for pointing out a logic error here], proportionately increase your weighting as the square of the amount that they are net long.  Keep buying gold mining shares using the above formula until commercials are once again net short, then stop buying them (unless they go net long again) and hold on for the next ride higher.  When Market Vane again shows 80% bullishness toward gold, start gradually selling.

May 1, 2002:  QUESTION:  Recently a number of gold producers have announced that they have either entirely eliminated or else substantially reduced their hedge book (the amount of gold they are selling forward).  How will this impact the price of gold?  ANSWER:  Over the long run, hedging has no effect on the price of gold, as it merely affects the timing of gold sales, rather than the total amount.  However, over the short run, if the total world amount of hedging has been reduced, it is logical that this would result in a price increase, as a hedge reduction is essentially equivalent to a purchase of the same quantity.  It is even possible that the majority of the recent rise in the gold price (above the pivot price of $276) was due to a reduction in the total worldwide hedge position.  Over the past decade or so, producers have generally increased their hedging when prices were high and reduced their hedge books when prices were low, thus damping volatility.  Some gold share investors have been more activist in recent years in demanding that many producers either eliminate or at least sharply reduce their hedging activities, so that gold share prices are more directly leveraged to the gold price.  If gold producers are now more afraid of negative public opinion if they resume their previous hedging activity, it is likely that hedging will remain at a low level in the near future.  Therefore, although the long-term movement of gold prices will not be affected, short- and intermediate-term volatility is likely to sharply increase, as producers are selling at market prices most of the time.  Higher volatility probably means that there will be greater percentage swings in gold mining share prices over the next several years as compared with the previous several years.


Tuesday, February 25, 2003:  The overall current outlook for gold and its shares has improved from STRONGLY BEARISH to MODERATELY BEARISH, as gold and its shares have declined substantially, putting us closer to the eventual nadir.

Tuesday, February 25, 2003:  The traders’ commitments indicator for gold has improved from STRONGLY BEARISH to SIGNIFICANTLY BEARISH, as commercials have continued to reduce their net short position significantly from its recent 22-year peak of 127,047 net short.

Tuesday, February 25, 2003:  The price/volume statistics indicator has declined again from SLIGHTLY BEARISH to MODESTLY BEARISH, as the HUI is about to struggle with its 200-day moving average, and gold itself has a significant amount to drop before testing its own 200-day moving average.  The shares are consistently underperforming the metal, and the intraday trading behavior shows gold mining shares repeatedly moving higher in the morning and then lower later in the day.  Both of these patterns are bearish for gold and its shares.

Thursday, December 19, 2002:  The overall current outlook for gold and its shares has dropped from SIGNIFICANTLY BEARISH to STRONGLY BEARISH.  Gold mining shares, especially those of senior producers, continue to underperform the gold price, while investor sentiment has turned euphoric.  This is a profoundly bearish combination.

Thursday, December 19, 2002:  The price/volume statistics indicator has fallen from NEUTRAL to SLIGHTLY BEARISH, as the HUI, which failed to approach its June 4, 2002 peak, is negatively diverging from spot gold, which easily set a new 5-1/2-year high.

Monday, December 16, 2002:  The overall current outlook for gold and its shares has plummeted from MODESTLY BEARISH to SIGNIFICANTLY BEARISH.  Commercials are at an extreme net short position.  There is very little put buying on gold mining shares, and lots of call buying.  The media has turned bullish on gold.  Senior gold shares are far underperforming bullion, while juniors have been surging.

Monday, December 16, 2002:  The traders’ commitments indicator for gold has fallen from SIGNIFICANTLY BEARISH to STRONGLY BEARISH, as commercials have been aggressively adding to their net short position into all rallies.

Monday, November 11, 2002:  The overall current outlook for gold and its shares has risen from MODERATELY BEARISH to MODESTLY BEARISH.  There is not as much insider selling now as in September when the HUI was in the mid- to upper-130s, and seniors are beginning to outperform relative to juniors, both of which are positive developments.  On the negative side, the traders’ commitments for gold are still unencouraging, and the traders’ commitments for currencies which correlate closely with the gold price are at multi-year extremes, indicating the likelihood of a U.S. dollar rally which will likely depress the gold price.

Monday, November 11, 2002: The insider stock transaction activity for gold has improved from SIGNIFICANTLY BEARISH to MODERATELY BEARISH, as the intensity of insider selling has noticeably abated, as one would expect given the decline in gold share prices since the middle of September.  No important insider buying has yet emerged.

Thursday, September 19, 2002:  The overall current outlook for gold and its shares has fallen from MODESTLY BULLISH to MODERATELY BEARISH.  The pessimism toward gold that was rampant in late July has been replaced by an optimism nearly as pronounced as what was experienced in the spring.  Juniors are far outperforming seniors, put buying has all but vanished, and commercials are once again more than 60 thousand contracts net short in COMEX gold futures.  I would be more bearish, except that gold share valuations are not as overextended as they were in late May or early June, so they have less to decline in percentage terms.

Thursday, September 19, 2002:  The traders’ commitments indicator for gold has plummeted from NEUTRAL to SIGNIFICANTLY BEARISH, as commercials have shown a strong eagerness to heavily re-establish short positions at any price above $315 spot, whereas small speculators are again more than 5:1 net long as they were in late May and early June.

Thursday, September 19, 2002:  The insider stock transaction activity for gold has deteriorated from MODERATELY BEARISH to SIGNIFICANTLY BEARISH, as insider selling by gold mining executives has picked up after a brief interval of insider buying in late July that quickly dried up after share prices rebounded.

Thursday, September 19, 2002:  The price/volume statistics indicator for gold has worsened from MODESTLY BULLISH to NEUTRAL, as the 200-day moving averages are too far away to be useful as short-term support, while put trading on individual gold mining shares has plummeted, indicating very little fear of a short-term drop in the gold price.

Tuesday, August 6, 2002:  The overall current outlook for gold and gold mining shares has improved substantially from SIGNIFICANTLY BEARISH to MODESTLY BULLISH, as commercials covered more than half of their net short position, and gold mining shares are not far from completing a bottoming pattern.

Tuesday, August 6, 2002:  The traders’ commitments indicator for gold has improved from STRONGLY BEARISH to NEUTRAL, as commercials heavily covered from July 23 to July 30, and were likely very close to net neutral when gold bottomed at $298 spot on August 1.

Tuesday, August 6, 2002:  The price/volume statistics indicator for gold has improved from MODESTLY BEARISH to MODESTLY BULLISH, as both HUI and the gold price itself tested and held above their respective 200-day moving averages on July 26, while the heavy concentration of call trading in gold mining shares seen in the spring has now led to only tentative gold trading, with put trading remaining roughly constant throughout.

Tuesday, August 6, 2002:  The gauges of future inflation indicator has improved again from MODESTLY BULLISH to SIGNIFICANTLY BULLISH, as both indices are showing double-digit growth rates.

Wednesday, July 31, 2002:  The overall current outlook for gold and gold mining shares has improved again from STRONGLY BEARISH to SIGNIFICANTLY BEARISH.  Given the recent substantial drop in price, there is less of a decline remaining.

Wednesday, July 31, 2002:  The insider stock transaction activity for gold has improved from STRONGLY BEARISH to MODERATELY BEARISH, as the recent sharp drop in gold mining share prices has discouraged further selling of these shares by top executives.

Tuesday, July 9, 2002:   The insider stock transaction activity for gold has deteriorated from SIGNIFICANTLY BEARISH to STRONGLY BEARISH, as the rate of recent insider selling by gold industry executives has exceeded the peak of February 1996, and is now approaching (but has not quite reached) its level from the summer of 1987.

Tuesday, July 9, 2002:  The traders’ commitments indicator for gold has improved from VERY STRONGLY BEARISH to STRONGLY BEARISH, as commercials are slowly covering their short positions when the gold price declines.

Tuesday, July 9, 2002:  The gauges of future inflation indicator has improved from NEUTRAL to MODESTLY BULLISH, as important leading indices of inflation are now showing positive rates of growth.

Tuesday, June 11, 2002:  The overall current outlook for gold and gold mining shares has improved from VERY STRONGLY BEARISH to STRONGLY BEARISH, reflecting the recent sharp drop in the price of gold and gold share prices, especially those of money-losing junior gold miners which had fallen over 30%.

Tuesday, June 11, 2002:  The gauges of future inflation indicator has improved from MODESTLY BEARISH to NEUTRAL, as important leading indices of inflation have moved from 26-year lows just a few months ago to near neutral today.

Wednesday, May 29, 2002:  The overall current outlook for gold and gold mining shares has deteriorated to VERY STRONGLY BEARISH, reflecting incredible speculation in junior money-losing producers, as well as juniors’ share prices far outperforming the seniors, as is typical of a peak in any equity sector group.  Insider selling is also more pronounced, as is insider issuance of new shares and other new security offerings by gold producers.

Wednesday, May 29, 2002:  The traders’ commitments indicator for gold has fallen from STRONGLY BEARISH to VERY STRONGLY BEARISH, as commercials are now at or very close to their heaviest short position since February 1996.

Wednesday, May 1, 2002:  The insider stock transaction activity indicator for gold has dropped from MODESTLY BEARISH to SIGNIFICANTLY BEARISH, as the frequency of insider sales and registrations for intended sales by gold mining executives has risen sharply over the past few weeks.  Corporate announcements about new secondary share offerings have also suddenly risen over the past several trading days.

Monday, April 8, 2002:  The price/volume statistics indicator for gold has improved from MODERATELY BEARISH to MODESTLY BEARISH, as the high concentration of call buying on individual gold mining shares has somewhat abated in recent days.

Monday, March 25, 2002:  The outlook for gold mining shares has deteriorated to STRONGLY BEARISH, as an enormous concentration of call trading and sparse put trading in individual large-cap gold shares is indicating that a peak in gold share prices is imminent.

Monday, March 25, 2002:  The price/volume statistics indicator for gold has fallen from MODESTLY BEARISH to MODERATELY BEARISH, also reflecting the speculative fever in gold mining shares in recent trading days.

Monday, March 25, 2002:  The gauges of future inflation indicator has improved from SIGNIFICANTLY BEARISH to MODESTLY BEARISH, as both measures of future inflation’s growth rates have turned noticeably less negative.

Monday, February 11, 2002:  The overall outlook for gold, gold collectibles, and gold mining shares has worsened from SLIGHTLY BEARISH to SIGNIFICANTLY BEARISH, as gold’s price rise to above $300 spot has encouraged recent purchasers who are completely uncommitted to the yellow metal unless it is rising, and who will therefore bail out given even modest unfriendly price behavior.  Bearish traders’ commitments and overbought technicals support this view.  Also, the first true rally stage of any real bull market needs its corresponding retracement.

Monday, February 11, 2002:  The traders’ commitments indicator for gold has deteriorated from MODESTLY BEARISH to STRONGLY BEARISH, as commercials are currently net short about sixty thousand contracts.

Monday, February 11, 2002:  The price/volume statistics indicator for gold has deteriorated from SLIGHTLY BULLISH to MODESTLY BEARISH, as unusually heavy gold share call buying is probably marking a short-term peak for the yellow metal and its shares.

Monday, December 24, 2001:  The overall outlook for gold, gold collectibles, and gold mining shares has risen from MODERATELY BEARISH to SLIGHTLY BEARISH, as the pivot price for gold has risen from $271 to $276 spot, while gold commercials remain highly responsive to modest moves in either direction, and currency commercials are generally short those currencies which correlate significantly with the gold price.

Monday, December 24, 2001:  The traders’ commitments indicator for gold has improved from MODERATELY BEARISH to MODESTLY BEARISH.

Monday, October 29, 2001: The overall outlook for gold, gold collectibles, and gold mining shares has improved from SIGNIFICANTLY BEARISH to MODERATELY BEARISH, as the traders' commitments have noticeably improved, though still show commercials markedly net short.

Monday, October 29, 2001: The traders' commitments indicator for gold has improved from SIGNIFICANTLY BEARISH to MODERATELY BEARISH, as commercials are more aggressively covering their short positions on all dips in the gold price.

Tuesday, October 23, 2001: The overall outlook for gold, gold collectibles, and gold mining shares has improved from STRONGLY BEARISH/VERY STRONGLY BEARISH to SIGNIFICANTLY BEARISH, as the gold price has dropped substantially.

Tuesday, October 23, 2001: The traders' commitments indicator for gold has improved from VERY STRONGLY BEARISH to SIGNIFICANTLY BEARISH, as commercials grudgingly, but steadily, are covering their net short positions on all price declines.


One of the most important factors affecting the market is the traders' commitments as reported every Friday by the COMEX. These commitments tell you what the commercials, or industry insiders, are doing vs. the non-commercial outsiders, also known as speculators. If the insiders, such as producers, jewelers, fabricators, and industrial users, are buying, while the speculators are selling short, this is BULLISH. If insiders are selling as fast as they can, while speculators are buying left and right, this is BEARISH. In any business, especially in commodities, people in the thick of things obviously know much more about the supply/demand situation than people who have no connection to the industry and are just trying to get rich quickly. The greater the disparity of the traders' commitments from their historic norms, the farther they must rise or fall to achieve equilibrium. The ideal buying opportunities, therefore, occur when commercials are net long far more than usual; the best selling opportunities are when commercials are net short much more than usual. (Thanks to "Jimmy C." for suggesting this enhancement.)

As of February 14, 2003, released at 3:30 p.m. on February 21, 2003, the commitments for COMEX gold futures showed commercial insiders long 54,707, short 132,506; large speculators long 69,759, short 33,952.  Small traders were long 56,887, short 14,895.  Commercials were thus net short 77,799 contracts, having reduced their net short position by 16,561 over the previous reading.  This indicator has improved to SIGNIFICANTLY BEARISH.  Readers interested in the official traders' commitments for all commodities and financial instruments should go to for many years of data. Click on "Current COT Reports" and then on "Commodity Exchange Incorporated" for the latest gold commitments.


Gold must always compete with time deposits as a short-term investment. Therefore, as interest rates rise, there is more to lose by being invested in the yellow metal rather than in an interest-bearing time deposit. As interest rates fall, there is less to be sacrificed by being invested in gold. On the flip side, lower short-term interest rates sometimes stimulate economic growth. Gold acts most strongly when inflation is outpacing the percentage gain in GDP. In addition, gold tends to perform best when the spread between the risk-free short-term interest rate and the inflation rate is either negative or very small, indicating that individuals who have selected safe time deposits for investment are finding themselves either falling behind or remaining just barely ahead of inflation.  The world’s major industrialized nations are more concerned about preventing recession than fighting inflation.  This will therefore lead to increased inflation worldwide as it becomes acceptable politically to accept growing inflation, which will be ever more commonly perceived as a lesser evil when compared with the pain of high unemployment and other ills caused by a worldwide economic slowdown.  In the long run, this will be positive for gold and its shares.  Whenever short-term time deposits become increasingly attractive, they draw investor interest away from hard assets such as gold, which pay no interest.  In recent weeks, there has been evidence that U.S. inflation may be gradually but persistently rising, partly as a result of the falling U.S. dollar.  It is therefore likely that many investors in money market funds and other safe time deposits are actually experiencing a year-over-year loss in purchasing power, as the interest paid on their money is at a lower rate than the corresponding rise in inflation over the same time period.  This is fundamentally the most positive scenario for hard assets such as gold.


The behavior of silver, platinum, and palladium can serve as an early signal for gold, since these metals often rally or decline first. After trading in early December 1996 at a very small discount to gold, spot platinum reached a huge premium to spot gold as it hit a new 7-year high in August 1997, then declined almost all the way back to its 1985 low in December 1997 before rebounding above $400 per ounce in July 1998, then returning to a new post-December 1985 low of $330 per ounce in the early morning of October 30, 1998. Since then, platinum has continued to experience the agony and the ecstasy, soaring to $640 per ounce in January 2001, then sliding to $401 per ounce by October 2, 2001.  On Tuesday, February 4, 2003, platinum touched an intraday peak of $692, its highest level since October 17, 1980!  If nothing else, this certainly debunks the myth that sentiment about any particular commodity is unlikely to change rapidly over a short period of time, a reason often cited by ignorant though admittedly highly paid gold analysts! Platinum is likely to continue to trade at a substantial premium to gold until we are deep into a recession, when it often then moves to a small discount to the yellow metal. Palladium had been rallying the most sharply and consistently since Tuesday, December 31, 1996, surging from $115 in late 1996 to $1150 (not a misprint), a new all-time high, by January 2001. Since then, palladium has proven that it can move rapidly in both directions by plunging more than 80% to $224.00 by December 23, 2002. As is typical, silver continues to be more volatile over the short run than gold. After touching a long-term double bottom of $3.50 per ounce spot in February 1991 and again in February 1993, silver made an attempted upside breakout in late 1997 and again in 1998 by soaring above $7.33 per ounce, before returning to its multi-year equilibrium price. Silver touched a nadir of $4.015 spot on Wednesday, November 21, 2001, its lowest level since September 29, 1993.  Silver recently made another euphoric peak at $5.15 on Tuesday, June 4, 2002, and then nearly matched that peak at $5.14 on Monday, July 15, 2002, thus completing a bearish double top.  Silver touched a low of $4.28 on Thursday, October 10, 2002.  Silver touched a recent high of $4.98 in the early morning on Wednesday, February 5, 2003.


On Wednesday, November 15, 2000, and again on Thursday, November 16, 2000, HUI, the Amex Gold Bugs Index, touched a historic intraday low of 35.31. The multi-year downward trendline in HUI was broken during the rally of April-May 2001, and since then has successfully held successfully to the upside. On Tuesday, June 4, 2002, at 9:52:45 a.m. EDT, HUI touched an intraday peak of 154.99, its highest level since October 9, 1997.  HUI exactly touched its 200-day moving average of 92.82 on July 26, 2002 and held above it.  HUI is currently slightly above its 200-day moving average of 128.  At 10:06:36 a.m. EST on Monday, January 6, 2003, HUI touched an intraday high of 154.92, just seven cents below its level of June 4, 2002, and has therefore likely completed a bearish double top.  Its recent divergence with the gold price is profoundly negative.  Since HUI could not set a new high even as gold bullion surged to a six-year peak, this reading is MODESTLY BEARISH.  Watch for fireworks as the 200-day moving average is engaged in a major struggle.

At 1:51 p.m. EDT on Wednesday, August 25, 1999, gold traded at $252.00 per troy ounce spot, its lowest point since May 11, 1979, over twenty years earlier. At 7:45:00 a.m. EDT on Tuesday, October 5, 1999, spot gold touched $338.00 per troy ounce spot, its highest mark since October 1, 1997.  As with gold shares, the downward trendline for spot gold dating back to the first week of February 1996 was broken during the early autumn 1999 upward spike and is still holding above it. Spot gold touched a nadir of $254.75 spot at 1:29:00 p.m. EDT on Monday, April 2, 2001, its lowest point since September 20, 1999.  On Thursday, August 1, 2002, spot gold made a short-term bottom at $298.00.  At 4:07:38 a.m. EST on Wednesday, February 5, 2003, spot gold peaked at $390.50 spot, its highest level since August 29, 1996.  Spot gold is moderately above its 200-day moving average of $327, which could be an important charting point to watch.  Because gold was recently euphorically overbought, this reading has deteriorated to MODESTLY BEARISH.

Total gold mining equity option U.S. daily volume is significantly above normal levels while put-call ratios are slightly below normal levels. This is SLIGHTLY BEARISH.

Synthesizing these three signals as a group, the price/volume statistics indicator has fallen to MODESTLY BEARISH.  HUI is negatively diverging from spot gold and has potentially completed a bearish double top, while spot gold itself appears to have completed a short-term peak.


Since the passage of his much-ballyhooed tax-cut package, President George W. Bush will now assume full responsibility for the deteriorating U.S. economy in the minds of most American voters. This is even more true now, as Enron and other scandals will inevitably bear the mark of perceived Republican cronyism, regardless of whether or not it is deserved.  With the Republicans in control of the Presidency, the Senate, and the House of Representatives, the Republicans will unquestionably be assigned full blame for the upcoming deep recession.  It will likely be a double-dip recession, but remember that the first dip is going to be a huge crater, and has not happened yet.  The Democrats will therefore almost surely sweep in 2004.  Of course, the truth is that Clinton, Rubin, Greenspan, and Co. created the euphoric boom which was really responsible for the upcoming "Great Recession". Therefore, Bush is certain, like Herbert Hoover, to be a one-term President; the Democrats will surely regain the White House in 2004, just as they did in 1932, even if Mickey Mouse is their candidate. Stimulating the economy without regard to inflation will be the watchword of the decade, and quite likely the early years of the next decade as well.  President George W. Bush, through his virtually total incompetence, especially with regard to managing the U.S. economy, is gold’s best friend.  Goldbugs could not wish for a more ideal choice in the White House, no matter how much they may philosophically disagree with his policies.


There have been a few dozen major financial bubbles in world history.  Every single one of them has ended with a huge collapse in equities valuations.  This is not going to be the first exception.  By the time we’re done, the Nasdaq will be below 300 and QQQ will be below 6 (these are NOT misprints).  The Dow Jones Industrial Average will go below 2000 eventually.  If the Nikkei can go all the way back to its level of December 1983, then there’s no reason the Nasdaq can’t go back to its level of October 1987, when it bottomed at 288.49 intraday.  Perhaps we will bottom in the summer of 2004, matching the pattern of the 1920s-1930s.  Before the bear market is over, ALL of the following “unthinkable events” will have to occur:  1)  Microsoft will pay at least a 5% annual dividend (notice that a small dividend was recently announced, so the ball is rolling); 2) the dividend yield on the S&P 500 index will exceed 7%, and maybe even 8% or 9%; 3) Microsoft and Intel will switch to the NYSE (notice that the symbols M and I remain unused; if you want to talk about a conspiracy, this is no coincidence); 4) tickers will disappear from virtually all public buildings; 5) several major and many smaller mutual fund companies will no longer exist; 6) the headline of Money magazine will be “Why You Shouldn’t Get Back Into The Market Just Yet”; 7)  I’ll be buying stocks and all my co-workers will be calling me crazy, instead of the other way around; 8) the huge Nasdaq screen will be removed from Times Square in Manhattan; 9) employees will be demanding traditional monthly retirement pension plans from their employers, rather than 401Ks; 10) (to be continued)


HUI is the Amex Gold Bugs Index, a weighted index of gold mining shares. In addition to being a useful leading indicator for the price of gold, there is a historical correlation between the behavior of HUI as it approaches or crosses any multiple of five, and the short-term future performance of the price of gold itself. The most bullish behavior is if HUI begins the day above a multiple of five, goes below a multiple of five during the day (particularly if the intraday low is the lowest level in several weeks or more), then closes the day with a gain. The most bearish behavior is the exact opposite. I prefer HUI to the more established and former favorite XAU due to the greater responsiveness and accuracy of representation of HUI. One unfortunate characteristic of HUI is that it always opens at the previous day's closing price, which is clearly inaccurate and distorting. Whoever is in charge of this index should remedy this defect.

HUI rose to an early morning top of 135.73, then retreated sharply to a late afternoon bottom of 130.60 before closing down 2.25% at 131.01.  Since the key level of 135 was broken to the upside and then repelled to the downside, and then the key level of 130 was somewhat approached and held to the upside, this is SLIGHTLY BULLISH.

On Tuesday, June 4, 2002, HUI touched an intraday peak of 154.99, its highest level since October 9, 1997.  On Wednesday, November 15, 2000, and again on Thursday, November 16, 2000, HUI hit an intraday bottom of 35.31 (holding just above 35, another multiple of five), marking its all-time low.  On Friday, July 26, 2002, HUI made a short-term bottom at 92.82.


50% of my money is in GICs and similar low- or no-risk investments.  I have a significant short position in gold and silver mining shares, but have now placed buy orders to cover at various levels below the market (some of which are substantially below current prices), as well as buy orders to purchase other gold mining shares which I prefer to own when I go long.  As a short-term trade, I have recently gone moderately long the U.S. stock market, including the Nasdaq.  I have a small long position in SWC.

(c) 1996-2003 Steven Jon Kaplan Your comments are always welcome.

AUTOBIOGRAPHICAL SKETCH: I was born and raised in Baltimore, Maryland, U.S.A., and was graduated from the Johns Hopkins University with a Bachelor of Engineering Science degree in May 1982. I have been studying the precious metals markets since the 1970s, and began this web site in August 1996. I maintain a fiercely independent stand toward the financial markets, and am not compensated by any person or organization with the exception of the advertising banners posted on this site. I am also a music composer, pianist, computer programmer, bridge player, and runner, and enjoy world travel.

In order to buy low and sell high, first you have to buy low!


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