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The Guessing Game

The market is going to go up...unless it goes down...or maybe sideways...

Which way are we going? There seems to be a vast array of opinions on that. Here are a few recent quotes:

  • "The psychologically easy thing to do right now is to be bearish on bonds and bullish on gold." - Mark Hulbert
  • "Those who are holding and convinced this is another minor shakeout have a very serious surprise in store." - John Mackenzie
  • "...I believe APRIL GOLD bottomed on February 9th at 411.50 and is now embarked on a new leg up." - Enrico Orlandini
  • So what's going to happen? Will gold tank, or will it skyrocket? Are the PM shares done with the brutal correction dating back to December of 2003, or has it just started? Well, I'll let the cat out of the bag now - - I don't know!. And to be honest, I don't think anyone else knows either. We are in uncharted financial waters, and I'm willing to bet that while Alan Greenspan has a plan to "fix it" (runaway housing and commodity prices, inflation, a staggering increase in the money supply, other countries dumping dollars, unprecedented government spending and deficits...pick one), he doesn't know for sure how it will turn out. If any of us could predict with absolute certainty which way the market (any market) was going to go, we'd be in Tahiti sitting on our big pile of money instead of wasting our time and energy on editorials such as this one!

    I find it interesting that many people, professional and amateur alike, make very specific calls in regard to the direction and timing of the market, yet most of them don't say *why*. I've seen predictions from a rabid permabull, well known to the gold community, who put himself on the line with a call for gold to scream upwards of $500 prior to August of 2004...but other than general fundamentals, I don't recall him giving a specific reason for that price target and that timeframe. Was it a simple guess? An educated guess, but a guess nonetheless? Conversely, another well-known market forecaster recently came out with a call for gold and gold shares to take a serious tumble in the immediate future - - he has listed many prices targets for the POG & USD, but doesn't say why this will happen. More confusing yet, back in December of 2004 this same forecaster called for a major rise in the POG and a serious decline of the US Dollar that never materialized - - this also had no stated reason for the move, just a prediction. My point is thus - - there is no one person that has the absolute inside track. When you go long or short - or just sit in cash, you should do so based on your own analysis of the available data. Look at the charts, read the articles, do the homework! For what this all boils down to is one big guessing game - - do you want to make that educated guess yourself, or leave it to someone else?

    Now that we've established what we don't know, let's take a look at what we do know. No opinion. No conjecture. No guessing. Just facts.

  • FACT: Gold and Silver are in an uptrend dating back to 2001.
  • FACT: The major support lines of this uptrend have not yet been broken for either metal.
  • FACT: The U.S. dollar has been in a downtrend since 2002.
  • FACT: The major resistance line of this downtrend has not yet been broken.
  • FACT: Several countries have recently stated that they wish to "diversify" their reserve holdings by moving away from the Dollar.
  • FACT: Never before in the history of the world has there been a global fiat currency issued by a country that is a record net debtor.
  • FACT: The reign of nearly every "superpower" throughout history has ended with extreme currency debasement and war. The most famous example would be Rome.
  • FACT: The United States is currently at war and actively debasing its currency.
  • Those are the facts. Some are fundamental and some are technical, but they are all pure truth. When it comes to whether or not you should be fully invested, sitting in cash, or hiding in a cave with a large gun, that is a decision each individual has to make on their own; but when you make that decision, remember to consider the facts, not the hype.

    Here's a quick view of the POG and HUI - - use it wisely.

    I've marked out the major lows for gold dating back three years. The blue circles indicate a major low, and the red circles mark a confirmation low (ie: a second bounce that shows the previous low wasn't just a stop on the way down - I'll call this a "c-low"). Granted, no pattern or cycle lasts forever, but I like to bet with the trend - and to me, the trend is pointing upwards.

    Here I've done things a little differently. The PM stocks are much more volatile than gold itself, which results in slightly deeper oversold technical conditions at each c-low. The blue circles mark all lows and c-lows, the red circles mark what I'm hoping will turn out to be a c-low. The blue trendline is the first line of defense, and the red trendline is additional support should the 200-level fail to hold. If we break the red trendline, I may jump over to the Elliot-Waver Bear Camp - - but for now I remain firmly a bull.

    I must point out one major difference between the gold market today and that of the past three years. When the Nasdaq bubble popped in 2000, the Fed responded the same way it has to every financial crisis in the last twenty-some years - - by lowering interest rates thus increasing the money supply. While there are no guarantees, it appears that the Fed will be raising rates for the foreseeable future. Will it be a repeat of the late 70's and early 80's inflation battle? We're going to find out....

    One last item... I've taken some good-natured ribbing for not signing these reports. This was not done out of fear of being wrong, or some need to remain anonymous - I simply figured people didn't care. I mean, what you want is the data, right? But for those wondering, my name is Joshua Fritsch. Whether that name will go down in history as a genius or a schmuck doesn't really matter to me. I've received immeasureable knowledge from geniuses and schmucks alike - - it's putting all of that information together that allows me to make my decisions. I hope that my analysis proves useful to your own choices.

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