Richard Rhodes Analysis of Gold 2/02/2001
| Gold & Silver Index ($XAU) Over the past several
years, I have been an animated bear on the price of gold. However, the time
has come, and the conditions are correct, in which one must begin to explore
the long side of gold in some type of fashion. Whether it be through the
metal, gold stocks or other such instrument, my participation is warranted
-- for the economic landscape will change, and with a rapidly expanding
monetary base, and the Fed lowering interest rates in 1/2 point increments,
I feel they are underestimating the economy in much the same manner as they
overestimated it before. Remember, this is all in hindsight. I supported
the Fed when they raised rates; however, I do believe they are overreacting
to the slowdown in the economy, and as such inflation in the distant future
will be higher than we have seen in a decade. Thus, my move into the "warmly
bullish" gold camp, and as a consequence, silver. As the daily chart above
of $XAU shows, prices have been trending lower for quite some time. But
current price action suggests a bottom is forming. The move higher off the
low in November at 42 to the reactionary high of 53 now feels as if it is
the first leg higher of an extended bull move. Therefore, the subsequent
move from 53 to the 48 area is corrective in nature, and the beginning of
the third leg of this move higher has begun. One can clearly see the head
and shoulders bottom forming -- this is quite bullish. This is in conjunction
with a flag formation testing support at 48, and the 20-day stochastic is
turning higher. The 200-day simple moving average has also been tested,
but not broken to the upside -- given time this should occur relatively
quickly. In ending, given the confluence of these technical events, one
cannot help but be bullish for the time being. For a longer-term bull market
to be "made", many things must happen. But the first step towards a sustained
bull market has occurred, and now is the proper time to participate. Good luck and good trading, Richard Rhodes |