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September 23, 2008

Final Boarding Call for Gold
by David Nichols

There is now little doubt that a big new uptrend is building in gold -- and silver, too -- thanks to a hastily-executed and unprecedented re-arrangement of financial power away from the private sector and towards the U.S. government.

Nobody knows how this new scheme will work out, but we've just received a $700 billion reminder that the dollar is simply not viable as a long-term store of wealth.

The loss of value in the dollar is the investment theme that launched and supported the parabolic upside patterns in both gold and silver, and the re-emergence of this theme is again the propelling force behind the next hyper-growth phase in precious metals, which is starting right now.

Just a few weeks ago it seemed like nothing was going to stop the rebound in the dollar index, and the corresponding decline in gold.

But just a short while later the dollar index is giving back its gains in big chunks, and gold is soaring back up at a record pace. The counter-trend corrections -- up in the dollar, down in precious metals -- are over.

This coming up leg in gold should last longer -- and move higher -- than most people are expecting, as the initial energy surge has been extremely strong.

It is vitally important to recognize that the surge of energy that has come into the markets off this bailout is precisely the type of watershed event that defines and controls a market fractal pattern for years into the future.

The tell-tale sign that big new patterns are forming is the massive spike in volatility, and even more than a week later the initial energy surge is still causing jumbled and chaotic patterns in just about every market.

This is equivalent to a large rock thrown into a pond, where the initial waves after impact are large and chaotic, and only as the energy moves out from the epicenter does it organize into smoother and more predictable waves.

Equity markets and precious metals are still assimilating this initial energy blast, and they have not yet moved into a more organized state, although this should start to develop throughout the rest of this week, as financial markets start to calm down.

Once this initial energy settles down, we should have a stable and well-defined bullish market fractal pattern in gold. I think the coming patterns in gold and silver will be very powerful and extremely good for trading, as in my experience the patterns that form off a single watershed event are the most predictable.

In the short-term, gold is due for one last test back down -- most likely to the $850 energy level for December futures (GCZ8 and ZGZ8) -- but this should turn out to be the "final boarding call" for gold prior to lift-off.

Ideally this next test down to $850 will be a sudden and dramatic drop, as this is the preferred way to stoke up the right energy mix for a bigger, more sustainable rally.

Following this test down, gold should move into a specific short-term buy pattern. As always, I will keep subscribers to the Fractal Gold Report updated every day.

David Nichols
email: editorial@fractalgoldreport.com
Fractal Gold Report

David Nichols publishes the Fractal Gold Report, a daily report covering the gold market using proprietary techniques that go beyond technical and fundamental analysis. The Fractal Gold Report is available by subscription here. Fractal Gold Report Disclosure.

David Nichols is a graduate of Yale University and a leader in the emerging field of fractal market analysis. This pioneering analytical approach studies the markets as chaotic, non-linear systems, addressing the predictability in financial markets. Fractal market analysis discovers the order hidden within the seemingly random chaos of the markets.

David is the editor of the Fractal Market Report and the Fractal Gold Report, daily subscription newsletters written in an easy-to-understand style that cover the markets using his proprietary techniques that go beyond technical and fundamental analysis.

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