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At the beginning of July The Wall Street Journal published their Semiannual Economic Forecasting Survey which showed that the 55 economists polled were uniformly bullish for the economy and the stock market until the beginning of January. Since then, only two weeks ago, look at what's happened: -

• The Dow is down 2.3% since the end of June.
• The Nasdaq is down 6.5%.
• Industrial production for June is down at 116.190 from 116.534.
• Capacity utilisation is 77.2 compared to 77.6.

To us it looks as though the Dow has topped as has the U.S. economy!

Yes, there are still 6 months to go before January. Yes, George Bush's people are telling us that all looks great, that the economy is strong and set to go well all the way forward, but a growing percentage of, not just the U.S. financial community, but the global financial community, now have their doubts. And not surprisingly! Just what drives the U.S. economy? Most agree it is the Consumer. He was the target of the tax incentives, he, the beneficiary of the low interest rates and he it was who was encouraged to jump in with both feet. He is still smiling but the tension in the smile is noticeable, as he looks at how completely leveraged he is. And that tension is set to rise as interest rates rise and should inflation gain even more pace, rates must rise even more, squeezing our now grimacing consumer like a slowly, but firmly gripped, nutcracker. He was hoping for a rise in pay, so he could increase cash flow to cope with rising costs, but the Jobless numbers and flagging data, are sucking the wind out of that sail. Still with large doses of testosterone, the powers reassure him that all is well, keep spending. You can get a great deal on a new car! Why, because their sales are dropping alarmingly. It a true patriot who commits you, to his cause!

Suddenly we have to realise that this is a people thing, a game of perceptions, of confidence, rising or falling. Suddenly Technical Analysis, the charts, come into their own, pointing the way with an uncompromising accuracy, step up to the plate. Tony Henfrey the Technical Analyst of Gold Authentic Money published, two weeks ago, a chart that showed the Dow was set to fall. Few accepted that. The next week he published a second one showing the fall had begun and was set to go further. Now we have the most conclusive review of the situation: -

U.S. INDUSTRIAL PRODUCTION (June: 116.190 down from 116.534):

This monthly chart does show that upward trend is still in progress. All would agree that. But then look at the 5 month RSI. It's run into a downward trend from its highs. This may well be an indication that if it hasn't quite peaked, but it is now slowing down!

We haven't shown it here, but based on our very own, monthly, Maximum Entrophy Spectoral Analysis of the annual rate of change, we see that the index actually peaked in May at +5.92% (after having risen from its low at -5.41% in November 2001)! So where now? Our view is consistent with the mood now spreading across the financial community which is for a declining trend until July 2005. As if that weren't enough there is a 49/98 month cycle, looking as though it is cresting. Even more alarmingly, it is only set to bottom in the fourth quarter of 2007.

Of course the key to capital investment lies in the economies of scale. Is there enough demand to risk running out of production capacity? Should we build more capacity. This is an acid test of growth and its sustainability, one watched very closely by those wishing to expand to meet the expected growth. This too, has its place in Technical Analysis world and we follow it. We have not supplied a chart [but if you contact us for our work, we will be happy to work with you], but here we find that the 5 month R.S.I. has turned down from a high May reading of 94.9.

The monthly M.E.S.A. of the annual rate of change shows a rise from -8.43% in October 2001, to a high of 4.44% in May this year.

Thereafter, we see a topping out process extending to August, thereafter a decline going forward until June 2006. In addition we may have a + 64 month cycle, which is only due to make a low in March 2007.

The key questions now jump up:

1. If we exit equities, where do we go?
2. Will interest rates continue to rise in this environment?
3. Is inflation going to continue in this environment.?
4. Is the spectre of inflation set to return to haunt us?

We have long spoken about the prospects of this scene in the pages of Gold - Authentic Money, and will continue to do so. Most of us are not familiar with life in an uncertain world, one where confidence decays and expectations unrequited. Most of us have not seen a serious decay in the value of money itself. It comes when least expected or wanted. But the spectre of such a financial climate is speeding rapidly towards us. That's whys so many are getting to know gold, learning the best way to hold it, opening their minds to the possibility of holding it in their portfolios. Maybe it's just to hold onto values that they have attained in their lives, so far and to duck the fall in their worth, until a day when they can buy back the same assets they now hold, but at lower prices. This will be why the developed world will recognise the beauty of gold and treat it as a sound investment again.

But this will prove to be only one of the several fundamental pillars on which the next enormous Bull market in gold is to be built. In a broad and incomplete sweep across the factors that support the next leg of the gold bull market, these are the main features:

• Gold will have a renewed role in support of the present monetary system.
• It will see renewed conservative investment interest.
• Supply restraints will manifest themselves shortly.
• Current holders of gold will prove unwilling sellers.

We continue to follow each element of the gold market, so you can be fully informed, not only through articles, but through Technical Analysis. This will turn a discouraging picture into a profitable one! Please see subscription details below.

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