How High is Up for Gold?

By: Robert McHugh | Mon, Dec 12, 2005
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Gold's rally is nothing short of spectacular, hitting another new intraday high of 530.67 Friday, the highest level for Gold in over 24 years. Question is, where does it stop before an intermediate-term correction begins? One logical stopping point would be the upper boundary of the trend-channel. Gold will reach the upper boundary of the rising trend-channel that started in 2002 around $550 an ounce. A coming small degree wave iv correction would allow a final bounce into a primary degree wave (1) top that could take Gold toward a higher point on that elevating upper boundary of the trend-channel, closer to $600. The huge move in Gold the past six weeks has the feel of an impulse wave three, meaning there is another impulse higher coming, a wave five (v of 5 of 5 of (1)).

The above chart is interesting in that it is an intermediate-term trend change indicator. It signals when multi-year trend changes are likely in Gold. Over the past ten years there have only been two signals, and both were on the money (sorry for that cliché). In early 1997, we got a "sell" signal as the Fast measure dropped below the Slow measure. Gold in fact fell for the next three years. Then, both the Fast and Slow measures got tangled together, and remained approximately equal for two years. In fact, Gold moved sideways during that time. Then an intermediate term "buy" signal was generated in mid 2001, suggesting it was likely that Gold would rally for several years. That "buy" occurred when the 14 month moving average "Fast" measure crossed decisively above the "Slower" 5 month moving average of the 14 month moving average. In fact, Gold did oblige, and has since risen more than 67 percent over a four year Bull market.

So, where do we stand now? As of November 30th, 2005, the Fast moving average measure remains decisively above the Slow, thus the Bull market advance remains intact. Once the two meet, we will have a caution sign of a possible intermediate-term trend change, thus a good time to consider whether or not to hold Gold through the next correction, while accumulating more at cheaper prices -- or to sell Gold. We will keep our subscribers abreast of these trend developments.

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Robert McHugh

Author: Robert McHugh

Robert D. McHugh, Jr. Ph.D.
Main Line Investors, Inc.

Robert McHugh

Robert McHugh Ph.D. is President and CEO of Main Line Investors, Inc., a registered investment advisor in the Commonwealth of Pennsylvania, and can be reached at www.technicalindicatorindex.com. The statements, opinions and analyses presented in this newsletter are provided as a general information and education service only. Opinions, estimates and probabilities expressed herein constitute the judgment of the author as of the date indicated and are subject to change without notice. Nothing contained in this newsletter is intended to be, nor shall it be construed as, investment advice, nor is it to be relied upon in making any investment or other decision. Prior to making any investment decision, you are advised to consult with your broker, investment advisor or other appropriate tax or financial professional to determine the suitability of any investment. Neither Main Line Investors, Inc. nor Robert D. McHugh, Jr., Ph.D. Editor shall be responsible or have any liability for investment decisions based upon, or the results obtained from, the information provided.

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