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October 12, 2005

Make or Break?
by Joshua Fritsch

It's been a very exciting several weeks for gold, silver, and shares in the companies that mine them. My old favorite, Goldcorp, has astounded even me in its strength. All of "the usual suspects" have performed well, and in the case of some juniors we've seen gains of well over 50% with a few approaching 100%! So the question on everyone's lips is, "Hold or sell?" I must admit, it is a torturous decision - - a bird in the hand against the potential for an entire flock! We have analysts making calls both ways - - Jeff Kern and his SKI system are sitting tight on a long-term buy signal while Jack Chan made a bold call for a major interim top. There are certainly strong arguments for both sides. A while back I produced a few charts showing that the best time to sell PM shares was when the POG was making new highs - - we certainly are in that category now!

The best moves in the PM sector seem to come at the very end of the cycle of new highs for gold, so it is psychologically difficult to sell when you don't know if the POG will continue screaming on upwards for a few more weeks, or if we've hit an interim top. We'd sure hate to see our favorite stock, which has already rewarded us with a 20-50% gain go up another 20% without taking us along for the ride! This is greed. Greed will slap you in the face and leave you wondering what happened. Sure, we may miss an upward move, but that's infinitely better than being caught in a steep correction!

While it is impossible to predict market moves with certainty, there are, without a doubt, times of clarity and times of cloudiness. I believe we are currently in the latter - - thus, it is prudent to step aside until some of the fog is removed. The safest manner in which to step aside while still keeping your hand in the market, "just in case", is to get out of margin. Hold your favorites, but own them outright. Don't get caught in a downdraft while playing with other people's money!

But hey, don't take my word for it! Let's take a look at the historical performance of the metals and the PM stocks and see if we can gain any insight.

Here I have marked each high for the POG since the double-bottom in 2001. While it is not impossible to think that we have some upside momentum left, the signs of an imminent top are flashing. Let's take a look at the HUI and see how we would have done by selling in 06/2002, 12/2002, 01/2004 and 12/2004 - - just as the weekly chart of gold peeked up over the red lines indicated in the chart.

As you can see, we would have been quite happy to bail on the PM stocks at those times! Yes, yes - - "but this time it could be different!" And it very well may be different ... gold may detach from all currencies and rise gloriously to $3000/ounce - - but I don't think it will, do you?

Joshua Fritsch
TheMarketTraders.com

Disclaimer: The information contained in this article is believed to be factual, however, the author cannot be held responsible for mistakes or intentional deceptions on the part of the sources. Trading and investing of any type entails risk, and that risk is assumed solely by the trader/investor.

Copyright © 2005 Joshua Fritsch

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