The next step was to reinvest the proceeds of these sales into stronger issues during the correction.  Downside buy prices were recommended; and in February, we were able to reposition into stronger companies with brighter futures.

So, what’s next?  Gold corrected and has since moved back up from the February low of $1,044 April basis to $1,162 recently.  From a purely technical perspective, the bullion and stocks are getting a little overbought.  However, I don’t expect a huge selloff.  Gold is breaking its direct ties to the dollar.  The reason is that Russia, China, and India are in the market for a lot of gold.  They are in the market for at least 1,000 tons each, and I believe they will put a solid floor under the next period of profit-taking.  Gold will hold at $1,100 to $1,120 in the next correction.

I have recently taken the “hold” rating off some of the juniors on our list and intend to address the rest soon.  Gold has now progressed through two of the three phases every bull market goes through.  It is all explained in my recent publication The Investor’s Toolbox, which is available to all subscribers.  The final phase is the Velocity Phase, and this is when things will get very exciting.  The Velocity Phase will begin slowly at first and accelerate over the next three years.  I expect to see bullion with $50 to $100 daily moves within the next 18 to 24 months.  It is time now to invest in select mining stocks and closed-end funds for that potentiality.          

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In December, I titled the monthly letter “How To Play The Dollar Rally.”  That was met by the expected skepticism, but my technical work was saying that the Street was wrong in its perpetual bearish outlook for the dollar and that a rally was about to provide a surprise.  As I write this, the dollar has moved up about 7% from its early December low. 

The trick is how to play it.  My recommendation was to put sell stops on select precious metal positions.  The sorting was done with a technique called comparative strength and weakness where we protect the profits in those issues that are comparatively weak in relation to the rest of their ilk.

The dollar has rallied, and gold has sold off.  We nailed down some profits in the metals.  Our next move will be to reinvest the money we raised from those sales.  The strategy will be to put the money into better – comparatively strong – issues.  The process of selection and specific buy prices has begun, and initial purchase recommendations were published in the January monthly letter.  Gold has the potential to correct back to at least $1,060 - and likely to the breakout point of $1,000.  It is time to begin planning where your next buys are going to be.

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Now that gold has traded over $1,100, my long-held belief that gold will eventually hit $1,600 is not as difficult for the Street to accept.  I developed that $1,600 target late in the last decade when gold was hovering at the $250/oz. level.  Back then, thinking that gold would reach current levels - let alone $1,600 - seemed preposterous.  Well, $1,600 will likely end up being woefully shy of the ultimate high.  It is not out of the question to expect gold to reach twice my original $1,600 forecast. 

The key is, of course, the U.S. dollar.  As the U.S. Dollar Index approaches its 2008 lows - which are in the 72.00 area - gold has taken the lead and broken to new, all-time highs.  The dollar will fall much lower over the next few years, and gold has a long way to go yet.  We need to accept the tenet that nothing goes straight up or down.  There will be countertrend corrections along the path of the major trend. 

Consequently, there will be better places than current levels (near $1,100) to buy the metals.  I have no doubt that you can buy here and make money.  That is not the point.  The point is that timing and patience can enhance returns and reduce risk as well as eliminate emotional anxiety, which leads to mistakes. 

Timing is all about finding the best time to be a buyer or seller.  We accumulated precious metals positions last summer as most of the mining shares on our recommended list were correcting and dropped down to the respective downside buy prices that are published in the ProTiming letter.  We were also able to pick up a few more positions at our buy prices late this October just before the last surge in prices began.  However, those opportunities are past, and it is a time to hold on and wait for the next buy point to develop.

I am uncomfortable with the over-belief that has built up in this market as the price of gold breaks to new, historic highs.  My technical work indicates that the most likely future event will be a correction in the metals.  Bottom line, you need to wait for that correction and take advantage of the market’s cyclical nature.  Buy into the highs, and the market will take advantage of you. 

So, why not sell here and buy back later?  The main reason that strategy will not work is because folks simply will not buy back in.  As the correction runs its course, the mood will turn as gloomy as the mood was bright at the highs. 

Our recommendations are presented as long term, buy-and-hold positions.  In my 40 plus years in the market, perhaps the most frequent mistake I have seen investors make is to convert a successful, long term investment portfolio strategy into a trading program.  Suddenly, they are making their decisions on the basis of emotion rather than reason.  It never works.  Open a separate trading account and trade it if you like, but leave your investment portfolio alone.

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Gold has finally broken above the psychological $1,000 level – yet again.  This is very good news as we hold a lot of precious metal related issues.  We have held gold stocks for years, and we were able to pick up a few more shares at our recommended buy prices this last June and early July.

So, what does this break over $1,000 mean, and can it be sustained?  First of all, I think it means that our inflation theories are on the mark.  Gold at $1,000 does not bode well for a stronger dollar or lower commodity prices in the future.  My long term target has always been $1,600, and I think that may well end up being conservative.

So much for the long term.  The long term outlook could not be more bullish.

The near term is another matter.  I am a bit unsettled by the COT (commitment of traders) numbers that show who is where in the futures markets.  You can review the positions held in gold, silver, and platinum at 321gold.com under “Reports Charts.”  The numbers are updated each Friday.  In the last dated September 4, speculator’s long positions were 10.9 times greater than their short positions.  On the other hand, the “commercials” - those guys that actually deal in the business of producing and using gold - were net short 226,331 contracts. 

These numbers are very high historically, and they have been increasing.  The speculators have been building up longs and the commercials have been increasing their short positions.  It is not a good idea to bet against the commercials.  They tend to win every time.  Currently, it looks as if they like the idea of selling gold at $1,000 an ounce.

I have shared other near term technical work with my readers.  Most alarming is the overbought conditions present now with price having exceeded the third Bollinger band. 

Bottom line, my opinion is that things are looking very bright as to higher prices for gold long term.  I think we will see progress toward $1,300 by this time next year.  However, last June was the time to be a buyer when the COT numbers had the commercials on the long side and the speculators short.  Hold what you have, but the breakout above $1,000 is not a buying opportunity.  I will be reviewing the gold outlook for the rest of the year in our next letters, and I will be setting forecasts as to where the next buying opportunity will be in terms of time and price.  

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Gold has been trading within a wide trading range between $880 and $980 since tipping the $1,000 level in February.  My technical work is indicating that this consolidation is finally coming to an end.  The next move should take gold through the psychological $1,000 level, and I expect to see new highs in bullion by the end of the year.

The gold/XAU ratio recently moved back up to 7.00.  The higher the ratio, the cheaper mining shares (as represented by the XAU or Philadelphia Gold and Silver Index) are compared to the price of gold.  A reading of 7.00 represents an excellent place to buy mining shares.

I am looking for a final downside test during the first two weeks of July.  Most of our recommended mining stocks are expected to hit their respective downside buy prices in that time frame.

My gold work is somewhat mixed here.  After dropping to $865 - which was not quite as far as my downside projection of $850-$860 basis June - gold recovered back over $900.  It has since encountered overhead resistance at $920-$930.  The question is, what’s next? 

Subscribers had plenty of opportunity last year to purchase gold and silver issues at earlier recommended prices, and I have recently raised the downside buy prices on my recommended precious metal stocks.  The market will have to pull back a little in order to hit these prices, but I believe the best strategy is to gamble on a final test of the down side before gold finally surmounts the $1,000 level.

Bottom line, hang on to your precious metals positions.  If you feel underinvested or have yet to invest in gold and silver, use further weakness to accumulate.

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Our latest letter gives details about where I see bullion prices going in both the near and intermediate term.  In a nutshell, gold has a long ways to go.  The Dow/gold ratio will eventually fall to 2 (or possibly 1) before the commodity bull and the financial bear markets are over.  Consider that since 2000, gold has appreciated 228% while the S&P 500 has lost 48%.  This process is not over, regardless of what the stock market looks like this summer.

As the spring–summer rally gets under way, it will take the edge off some of the risk aversion that has built up on the Street.  Some safe haven money that fled to gold will leak out and into stocks, but don’t count on a big down side here.  Succinctly, I think buying gold under $900 is prudent.  I have espoused a target of $1,600 gold for eight years now; and frankly, that goal is looking pitifully low.  Based on technical considerations, once gold breaks over the triple tops at the $1,000 area, it should quickly double.  This next leg will take mining stocks – especially select junior mining stocks -strongly higher as well.

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I have talked a lot about the gold/XAU ratio recently, and it is still indicating that mining stocks are bargains in relation to the price of gold.  There are, of course, new elements in the economic mix these days.  Financing is hard for some miners to find - especially smaller exploration and development companies.  However, there is some sunshine poking through the clouds. 

The most recent example is Kinross (KGC), which is one of my favorites.  They just announced a $361 million bought deal at $17.25 a share.  There is a chance the offer may be oversubscribed.  Demand for physical gold remains strong, and producing miners with growth prospects will be able to find the money to expand.

The juniors will benefit from growing optimism in the sector, but I don’t expect to see them do much until gold breaks to new highs.  Gold appears to be consolidating near term, but this process should be ending soon.  There is good support between $775 and $800.  Weakness into that zone definitely offers a buying opportunity.  There is also overhead resistance at $900; but once prices break above that level, I look for a quick move to $1,050.

For the longer term, I think gold purchased under $850 will look good this time next year. 

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We may never see the bargains in gold and the mining shares that we have seen over the last two months.  The gold\XAU ratio, which normally indicates that the gold stocks are bargains versus bullion when it hits 5.00 to 6.00, soared over 10.00 in October.  The ratio has fallen back now to 8.00, but mining stocks are still steals at today’s prices.

The credit crunch is the reason.  In their panic to raise cash this fall, investors and institutions were forced to indiscriminately sell anything and everything.  However, the credit crunch and deleveraging has tossed a new element into the mix.  Due to the essential unavailability of credit, not all gold miners face the same future.  We are discussing with our readers just which individual stocks hold the greatest promise going forward in a tight money economy.

Gold also looks very bright here.  The U.S. dollar rally that began in July looks tired and stalled out.  The next significant move in the dollar will be down, and gold will rally in response.  In the short term, we will likely see some profit-taking as gold nears the $850 level, but I look for new highs in gold during 2009. 

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The most important indicator in our tool bag right now is Simplicity.  Simplicity is designed to point out advantageous times to buy (and sell) gold and silver mining stocks on a long term basis.  Subscribers are privy to our study “Timing Gold with Simplicity” and can learn to keep the indicator on their own.  It is amazingly simple to employ. 

The details are in our booklet; but suffice to say, when readings get over 5.00, the odds are very high that mining stocks will be higher 12 months down the road.  Readings of 5.00 and better are not incredibly rare.  Normally, we will see at least one “Simplicity” buying opportunity each year.

The recent correction has produced something much rarer, however.  The model managed to hit a reading of 6.05 on August 11.  The last time we saw readings at the 6.00 level was in 1999 when gold was $250 – $275/oz.  Bottom line, this is likely the best buying opportunity we have seen in the precious metals since the lows at the very beginning of the commodity bull market.

Frankly, I think the model is telling us something even more important.  One is that the commodity bull market is completing its first major correction and will soon be moving to new highs.  Two is that the recent rally in the U.S. dollar is a trap.  Three is that the summer rally in the stock market is a perfect opportunity to get out of financial assets and into tangibles in preparation for the next phase of higher commodity prices.

Most of our commodity-advantaged recommendations are selling at or below recommended buy prices, but I don’t expect that to last much longer.

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As we enter the middle of July, gold is completing a correction off highs posted in March.  From a seasonal standpoint, this is typical price behavior for gold.  If we are to guild the lily and attempt absolute perfection, gold should stage one final stab at the $910 level basis August before launching into its next major move to new, all-time highs this fall.

Subscribers have spent the last several weeks accumulating precious metal stocks on our buy-and-hold list at very advantageous prices.  For example, we were able to easily purchase one of our favorites - Kinross (KGC-NYSE) - at $18.00 to $20.00.  There is not much time left, however, and precious metals investors should be well-positioned now.

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The gold correction we called for earlier in the year is now nearly three months in progress, but we are seeing the light at the end of the tunnel.  Seasonally, gold will typically top out earlier than it did this year (in January rather than March) and correct  through July.  It appears that a low by the end of July is likely this year.  Our opinion is supported by weekly technical work as well as our shorter term models that we discuss in our letters. 

As the correction draws to a close over the next several weeks, it is time to target downside buy points in individual stocks and take advantage of further weakness to accumulate precious metal issues.  We have made specific recommendations in this regard in the June monthly letter, and we have introduced a new buy recommendation for an excellent bullion fund.  I think those who buy precious metals this summer are going to be very pleased come year end.

Gold has been relentless of late.  We have not seen the correction I have been expecting, and that carries two messages.  First is that gold is unusually strong.  Secondly, we are likely nearer some sort of period of profit-taking than we were a month ago. 

Trees don’t grow to the sky, and all markets - even strong bull markets - correct.  The key is patience and using those corrections to accumulate.  We had a field day with buying opportunities last summer when gold was consolidating.  The mining stocks on our recommended list backed off to our buy prices while the mood was bearish. 

Today, on the other hand, we find the gold market overcome with forecasts of ever higher prices.  However, among other negative, short term technical anomalies is that the mining shares - with the exception of a few large producers - have not kept up with the rally in bullion.  It is always a caution when the stocks lag.  They normally lead.

Gold will no doubt progress well over $1,000 this year on its way to $1,600, and probably beyond.  I have no doubt that one can jump in here; and if they are willing to sweat through a correction, one can profit from buying at today’s prices. Those who can hold while prices are falling will eventually be able to see their metals’ portfolios gain.  You can buy high and sell higher if you have the stomach for it and the discipline to still believe when the sellers take over.  Most, however, will sell out at the correction lows and fail to get back in.  On the other hand, waiting for true buying opportunities when the mood is more subdued will go a long way to keeping your accounts profitable and minimize risk.

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Gold has definitely been a star of late.  The November seasonal low was a bit sneaky.  Rather than falling back to the $720 -$740 level that I was anticipating, prices found support a little higher - at the $780 level.  Nevertheless, the seasonal weakness was there, and it was followed by a splendid rally to new highs during January.

We are seeing new warnings that gold should rest anew before advancing further.  I have negative divergences in much of my technical work, and the U.S. dollar looks like it would like to take another stab at a rally here.  I don’t look for a big deal on the down side.  I am expecting that prices will, perhaps, pull back to $800-$820.  The important consideration is that the precious metals usually correct and consolidate from January – February until summer.

The bottom line is that this is not a time to be chasing strength.  Most likely, we are due for some weakness here, but it will be just one more buying opportunity on the way to $1,600 gold.

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The correction we have been forecasting for gold is now taking place.  It began a little later than I anticipated, so it may not bottom out on time either.  The important technical points here are that Simplicity is moving toward a buy point and the last leg of the correction should take place into mid-December.

I have adjusted some of the downside buy prices for the mining stocks on our list of buy-and-hold recommendations, but the majority of them have not dropped quite far enough to hit those buys.  I have also added a new recommendation to the list, which is described in the December market letter.  The U.S. dollar looks like it needs to bounce temporarily and correct the beating it took over the last couple of months.  The correction in the dollar will push gold a little lower to a solid buy point.

Our Rydex gold trading program is still in the money market fund, but I expect it to move back into the Rydex Precious Metals Fund by year’s end.  All in all, the correction is closing in on the next important low in the precious metals.

I still expect to see gold at $740 to $720 basis February, and silver should fall to $13.00 basis March before the correction is complete.  The gold bears will be out in force, though, so you need to steel yourself against the silly talk you will be hearing and take advantage of weakness to add to your precious metal positions. 

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We have been talking about the seasonal high due for gold in October and the typical correction that follows.  We are closing in on that high now, and it is being confirmed by the vast array of my technical indicators.  MACD on gold has become overbought, and it has executed the second sell signal that I describe in my “Timing Gold with Simplicity” publication.  Furthermore, the mid-October high is not being confirmed by either MACD or the Relative Strength Indicator (RSI).  These negative divergences are waving a big red flag, warning us to expect a spate of profit-taking over the next several weeks.

Simplicity is a model I use to time the movement in mining shares.  Gold stocks will not move in lock step with the price of gold, but they will usually weaken and strengthen ahead of the metal.  Simplicity quantifies this relationship.  As Simplicity falls, the gold stocks rally; and as Simplicity rises, gold stocks decline.  Consequently, we can look at Simplicity inversely by applying tools like MACD and RSI to the indicator - much as we do to gold itself.  The difference is that “buy” signals indicate that the indicator is going to rise; and when it rises, gold stocks weaken.  In a nutshell, Simplicity has spoken.  On October 19, we moved our Rydex gold trading program to money market funds.

I do not recommend converting buy-and-hold investment positions to trading positions.  We are expecting a correction, but gold is going much higher.  If you have trading positions, by all means trade out; but hold your long term precious metal investments.

The next step in this saga will be a gangbuster low in November.  I am not expecting the end of the world in this correction.  There is minor support at $735 basis December and major support at $690 to $700.  With gold at about $770, this is but a 10% correction at the worst.  That’s a heart beat in the gold market. 

We have our investment recommendations - replete with recommended downside buy prices - on our buy-and-hold list.  Subscribers will find that on Page 3 of the Tuesday and Thursday online updates and on Page 6 of the monthly letter. 

Don’t chase the metals stocks.  Hang on to what you have, steel yourself against the inevitable negatives we will have as gold corrects, and get set for a great buying opportunity next month.  Beyond that, focus on 2008.  I look for new, all-time highs in gold during the first quarter.    

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Gold’s recent strength seems to have caught the Street by surprise, but we have been advising subscribers to buy into the traditional August lows since July.  What is unfolding now is a time-honored, seasonal rally into October highs.  That high should be followed by the next seasonal low in November … but then comes the best part of all.  Gold customarily rallies from November lows into the first quarter.  This year-end surge is usually gold’s biggest move in the year.  Bottom line, the party in precious metals is just getting warmed up.

The current rally should see prices move solidly over the $735 level, but more important is that gold now has decent, technical support at $690.  I will be evaluating this as we progress into October, but $690 may well be the base for the November low.

All of this short term stuff may be of little import.  Gold is going to work its way to $1,600 or better by the end of this decade, and I thoroughly expect to see new, all-time highs over $850 in 2008.

I don’t like to chase strength; but with the gold/XAU ratio standing at 4.60, it is not too late to add select mining issues to your portfolio.  The timing is not ideal, but some issues still look very attractive - especially some of the silver companies.  We have specific recommendations and target buy prices on Page 6 of the monthly letters and Page 3 of the Tuesday and Thursday online updates.  You should refer to those for current details.    

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Gold is on its way to the seasonal low it traditionally establishes in August.  This is will be the second low in a series that will be followed by a third seasonal low in November.

The August low is normally followed by a very strong rally into early October.  The October seasonal high is, in turn, followed in November by a third seasonal low for the year.  I then look for gold to rise to new, all-time highs - perhaps as early as the first quarter of 2008.  I expect the October 2007 high to at least test the $725 high set in May 2006, if not exceed it.

The dollar is a key to understanding the recent shorter term movements in gold.  During July, the U.S. Dollar Index modestly broke through 80.00, which has held the down side of dollar trading for many years.  I advised readers that the powers that be would step in and defend the dollar against a rout.  It is not that they are adverse to a weak dollar, but they want an orderly decline rather than a panic.

It appears that the dollar is being stabilized just over 80.00, but I don’t expect to see anything on the up side to speak of.  We could perhaps see 81.00 to 81.50 at the outside.  Basically, the dollar should bounce briefly and then begin drifting lower again during August.

As the dollar moves higher, gold will correct to its August low.  This low needn’t necessarily be lower than the low set at the June seasonal low; but in any case, I expect to see $640 basis August futures to offer solid support.

Investors should be focusing on the first quarter of 2008 when the gold market is going to be quite exciting.  Using weakness into the August and November seasonal lows to position for new, all-time highs in 2008 promises to be a winning strategy.

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I discussed the current gold situation in the June mid-monthly letter, and I have followed up in the July monthly letter that we just published.  In a nutshell, the $640 support level basis the August contract should hold this correction.  Most exciting is that a second MACD buy signal - which is my favorite MACD setup - has just triggered a green light.  The fundamentals look positive; and, hopefully, everyone is on board with gold and silver positions in their portfolios.  Most of our recommendations have hit their downside buy prices over the last few months.

There is a seasonal low in the metals,  which usually appears late in June.  There is also a more important seasonal low in August.  Consequently, we expect a bounce here and then a brief pullback into August.  Whether the August seasonal low will be lower than the June low is not important.  The important thing is to be positioned and use weakness to accumulate in preparation for a splendid late year rally.  Chances are, we will see gold reach its old 1980 high above $850/oz. in 2008.

Bottomline, I believe the mining stocks have the greatest potential for profit at this point.  We have several majors on our buy-and-hold list, along with recommended buy prices.  Perhaps more exciting is our list of junior mining companies.  These are where you will find tomorrow’s majors and where the big profit potential will be. 

Yamana (AUY-NYSE) is a case in point.  We included it on our list of juniors in April 2005 when we recommended it at $2.90.  It has been moved to our list of majors and is selling at $11.00.  It has come off on merger news, but I like the merger and think it is still a good buy for the long haul.

One of our latest additions is a little gold mining company that sells for about 50 cents.  It has great potential, and it’s certainly a better speculation than buying options on gold or silver.  In fact, I call our list of junior stocks “The Option Alternative.” 

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Gold has held up better than I expected over the last several weeks, but that doesn’t preclude a bit more basing in preparation for a final breakout above $690.  Nevertheless, as I look over my technical work and search for where the best opportunities are this month, gold comes to the top of my list. 

From the standpoint of a newsletter writer, gold is a tough sell here.  Most folks, if they are tuned into the commodity bull market at all, are focused on energy.  That is because the energy stocks, by and large, have done very well so far this year.  Gold, on the other hand, has been quiet.  The public loves to go where the action is after the move is under way rather than positioning for the action before it happens.

There are some succulent opportunities in gold here.  Several of our favorite gold issues are at opportune buy prices, and the time is ripe for accumulation.  Savvy investors will bide their time, use current weakness to accumulate, and be thrilled to watch their accounts bulging when gold leaps over $690 and the crowd finally jumps on the bandwagon.  Gold could easily dip below $660 basis June futures first over the next few weeks, offering forward-looking investors a chance to pick up mining shares before gold leaps to new, all-time highs.    

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The U.S. Dollar Index is poised to hit 80.00… again.  It has been doing this since 1978; but each time in the past, it has rallied.  This time will be different. 

There is a movement gaining strength around the world -  that is to go on a “dollar diet.”  Iran is asking for oil payments in euros rather than dollars.  There are other oil producers leaning to this strategy as well.  Some, like Iran, are looking for a way to penalize the West.  Others are looking for a way to stop accumulating so many dollars in their currency reserves. 

Some, like China, have decided to “invest” their foreign currency surplus.  China has formed what amounts to a government investment fund and intends to spend $350 billion of their over $1 trillion in reserves, along with the $200 to $250 billion a year they expect to take in from now on. 

The world banking systems are becoming satiated with dollars and are looking for something else.

What else is there?  That has been part of the dollar’s success, but there are euros and there are commodities.  The euro zone economy is now larger than that of the U.S., and euros are slowly moving into a solid competitive position in the world economy. 

What else is there?  There is always gold - the neutral currency. 

This time it will be different.  I look for the Dollar Index to break its long-standing 80.00 floor some time this year.  The struggle to break below 80.00 may be labored or it may be sudden, but it will happen.  When it does, gold will not turn back in dollar terms.

Gold is volatile, and it will have its corrections along the way.  Sometimes these corrections can be a bit gut wrenching.  Nevertheless, buying gold and gold-related investments during weakness is as close to a slam dunk investment as there is in this market.

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Gold is due for a minor cyclical low in early March, but a more important cyclical low is due late month. 

The exciting development in our technical work is a potential buy signal from our “Simplicity” gold timing model.  Simplicity reached a reading of 4.99 on the big market meltdown day, February 27.  It has since snapped back to 4.75.  The importance of all of this is that readings over 5.00 are strong and are rare buy signals for gold stocks. 

We are expecting gold and the mining shares to pull back during March, and this selloff is stacking up to be an extraordinary buying opportunity.  Once Simplicity issues its next buy, we will be sitting at the best buying opportunity for gold shares since the May 2005 lows when the XAU was at 80.00.

We will inform subscribers exactly when the “Simplicity” signal comes.  We have already given them specific buying recommendations along with projected downside buy prices.  However, in general, investors should buy precious metals and related investments into weakness during March.

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In November, gold advanced and broke out of a triangle formation, resulting in very bullish technicals for the longer term.  However, the real key to further appreciation in gold from its current $640 level is strength or weakness in the U.S. dollar.

The U.S. Dollar Index dropped precipitously from its October high to a low of 82.00 in December.  Then, just as the Street was predicting further declines, the index reacted from oversold lows and rallied back to 85.00.  This was but a technical correction in the long run decline in the dollar, however.  Now that the index has reached overhead resistance at 85.00, it appears to be rolling and about to be heading back to those December lows.

On the more fundamental side, principal oil-producing companies have been “diversifying” their dollar portfolios of late.  A few weeks back, it was reported that the Saudis dumped $3 billion, Qatar - 2.4 billion, Ecuador - $2.3 billion, Indonesia - $1.9 billion, and Iran - $4 billion.  I am sure there are others in this frame of mind as well.  It all bodes negative for the U.S. dollar this year.

As the dollar falls, gold will rise.  My target of 135 for the XAU that I gave you last month has been reached, and accumulation under that level is advised.  We have several precious metal mining companies on our recommended list, and virtually all of them have hit our buy points over the last three weeks.  It is time to accumulate in weakness.

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In November, gold broke out of a triangle formation, similar to what it did in 1979 just prior to moving to all-time highs over $850.  We are in a seasonably strong period for gold now as well.

Short term, there is a likelihood that gold will pull back and test the point of the November breakout, which would put it somewhere near $600 April basis.  Our outlook for 2007 is extremely bullish for the precious metals.  Weakness between now and the end of the year may offer the last chance to buy gold anywhere near $600.

The XAU should follow this short term correction.  My target is 135 for the XAU.   I anticipate seeing signals in my work that will prompt us to increase our exposure in our Rydex gold trading program during this pullback.

There are a myriad of reasons to expect new highs for gold during 2007 (which we outlined in our last letter).  However, the U.S. dollar is the key.  As the dollar falls, gold will rise.  That is cast in stone.

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Gold investors have been put to the test since gold hit $700 last May.  However, this is nothing unusual in the gold market.  The good news is that our technical indicators are gradually turning bullish.  MACD is close to issuing a second buy signal, which longer term subscribers know is the important one - especially if it is accompanied by positive divergence. 

Seasonally, the third quarter is the best time to find bargains in the precious metals, and this year rings true.  Near term, we may see one more test of the recent lows - but for all intents and purposes, the correction is over.  Use weakness to add to current precious metals portfolios, and get set for a splendid rally into the first quarter 2007.  I fully expect the next rally to surpass the high set last May, and I look for the all-time highs set in 1980 to be doubled (at the very minimum) over the next couple of years.  That will easily put gold over $1,600.

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All is well on the gold front.  We were able to easily purchase at our projected downside buy prices during July, and we are now beginning to reap the rewards.  In August, we advised readers that they would have one more chance to do some buying as gold would make a minor correction off its July high down to $615 - $620 December basis.  As it is, the December contract dropped to $613, and it has since moved strongly higher. 

Our advice is to hold your precious metal positions.  Our objective is to see gold reach $1,600 over the next few years. 

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Simplicity, our longer term gold model, gave us a buy signal on June 13, signifying that the punishing correction from the May high was over.  Since then, we have seen a nice rally, followed by a fit of profit-taking.  It seems that the Street is not a believer yet.

This looks like a normal period of profit-taking, and my downside targets are very close to being reached.  Both gold and the XAU are approaching support, and we should see the next up leg unfold before long.  I have a cyclical low due in gold in early August, so we should see prices appreciate soon.

The key here is to not get caught up in the short term - other than to use weakness for buying.  Your time horizon should be at least three years out, and I expect to see gold easily double its old 1980 high.  That would put it at $1,600, but this target may be too conservative.

I am looking for crude oil to reach $86 in its next run.  The average gold-to-oil ratio is 16.  Today, it is just over 8.  Dollar oil at $86 will show us gold at $711, if the ratio says where it is.  However, if the ratio returns to its mean of 16, gold will move to $1,360.  Bottom line, gold and crude oil are both going higher.

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At last!  On June 13, our Simplicity gold model chimed in with a buy signal, and it has been a harrowing decline.  Simplicity began to issue warnings of an impending top in late April.  We were advising that investors not chase the late April/early May strength, but to focus their buying strategy on the downside buy prices which we publish for our open recommendations.  Many readers were skeptical that we would see a correction deep enough to bring prices back to those levels, but such is the effect of linear thinking. 

The markets all cycle.  The precious metals corrected, and investors with discipline were able to add to their long term portfolios at very advantageous prices.

My next expectation is to see gold challenge its old, all-time highs at $800.  This should unfold over the next six to eight months.  Beyond that, a doubling of that high is in store.

Yes, I firmly expect to see gold reach $1,600, and that may be a conservative estimate.  However, first things first.  Steep declines are often followed by a period of basing and consolidation.  My advice is to use any further weakness to buy precious metals issues on our recommended list at or below their published downside buy prices.

Keep this in mind.  We are in a commodity bull market that as yet has not caught the attention of the broad investment community.  It will.  All commodity bull markets have lasted 15 to 20 years, and they have taken commodities to new highs.  This one is but 6 years old. 

On a constant dollar basis, gold has not even begun to advance.  There will be a commodity bubble, but that is yet to come.  It is time to invest now - not for the next week, but for the next decade.

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Well, that has been some rally in the metals!  One has to wonder just what is behind it.  Is there something that we are not thinking about?  Does someone know something we are missing?  Perhaps the dollar is set to crash; or more likely, perhaps the stock market is about to take a nosedive.

All in all, we bought precious metals a year ago when our Simplicity model kicked in with a buy signal, anticipating the price action we have seen over the last few months.  It is always better to buy in anticipation of future action than to simply project yesterday’s market into the long term future.

I don’t like the odds of buying at this point.  All markets will correct from time to time, and this one will be no different.  Patience is the investor’s best ally.

My Simplicity gold model - which we discuss in detail in the market letters - is advising against new purchases at this time.  The model does not recommend selling your positions.  The Simplicity Index is currently rising, which indicates that a better buy point lies ahead.  When the index stops rising and turns down, we will know that it is buying time once again in the gold and silver stocks.        

Bottom line:  buckle up.  Don’t sell your precious metals stocks, and plan to add to your positions during weakness.  Our market letter and hotlines list our recommended stocks as well as downside prices where you should make your purchases.   

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The precious metal correction is drawing to a close.  The gold/XAU ratio corrected back to 4.40, in line with our expectations.  Gold has cooled off, but it has been able to hold the $540 level basis June, which is much better than I expected.  I thought it would at least fall to $500. The fact that it has not is bullish longer term.  Silver is in a world of its own recently, due partially to the expectation of a silver EFT.

I would rather be buying at lower prices, but it appears that the correction in precious metals is coming to an end.

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In the last update, I cautioned precious metal investors that a correction was coming.  I advised subscribers to review their portfolios and weed out issues that were not performing.  That is all water under the bridge now, and the correction in precious metals is under way.  The next step will be determining what to buy and at what price.

I have a model that I call Simplicity because it is so simple to follow and calculate.  Recently, the model fell to caution readings, and it has triggered signals announcing that a correction is going to unfold in the precious metals.  The key now is, how long will the correction last and how far might we expect to see gold fall? 

The details were put forth in our February monthly letter on February 2; but suffice to say, the correction is not over yet.  The key for investors from this point forward is to buy when Simplicity says the coast is clear.

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We have had quite a run in gold and the mining stocks over the last several weeks.  It is always times like this - after something makes a big move - that investors decide it is time to buy.  You can count me as a gold super bull, but this is not the time to buy.

There is a relationship between the price of gold bullion and the price of mining shares, which I measure by the gold/XAU ratio.  This ratio is very important; and lately, it has been raising a caution flag saying that the mining shares have gotten ahead of the price of gold.  The ratio will run from over 5.00 - meaning that mining shares are bargains - to 3.00 - meaning that the mining shares are overpriced and should be sold.

Recently, the ratio touched 3.75.  This is not a signal to sell your long term holdings.  Believe me, gold and the mining shares have a long ways to go on the up side over the next five years.  However, it is a sign that investors will likely find better buys if they exercise a little patience.  Normally, we will see a correction at this point that is not severe enough to be a seller of our long term gold positions, but a sign that some adjustment in price is due.

Chart courtesy of www.futuresource.com

Gold bullion has done very well of late, and it was able to break decidedly over the $500 overhead resistance level.  The next step should be for a consolidation with a base at roughly the $545 level.  A major trend line on the long term gold/XAU ratio should stop the ratio at 4.25.  Thus, as gold consolidates at $545 and the ratio corrects back to 4.25, we should see the XAU correct to about 128.  This will be the time to take advantage of weakness and add to your precious metal positions.

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Gold is on a tear, but that is when you should turn cautious.  It is performing very well; but if you want to manage risk and save yourself from an ulcer, caution would be advised. 

It is very bullish that gold was able to break solidly over the $500 level and stay there.  The long term implications of this are bullish.  However, we are now encroaching on the point where 8-week cyclical highs are due, and the market is seriously overbought.  The gold market is heating up, but my advice is to wait for a correction before buying.

Gold bullion should back off - perhaps as far as $485 basis June futures.  At the least, we should see a test of the $500 resistance level. 

The mining stocks have lagged this move to some extent, and that is also a yellow flag.  As the bullion corrects, the mining shares should also.  We have posted our recommendations in the precious mining sector, along with exactly what price you should pay.  If you exercise a little patience and discipline, I think you will be able to make some very nice purchases this month, before the next rally phase begins.

Once the next period of profit-taking is over, I look for gold to move to $580.  It should see minor resistance again as cyclical forces and profit-takers work the market.  Now that prices have leaped the $500 hurdle, $720 is the next big objective.  

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I have been expecting gold to drop to $455 basis December and for the XAU to come back to 100.  So far, gold has dipped to $457.  Perhaps that is as good as it will get.  The XAU put in a low at 104 last month following a dip to 101 earlier in October.  Again, maybe that is it.

I have been advising investors to buy two promising junior gold stocks lately, as well as Goldcorp (GG-NYSE-$19.70).  Goldcorp did hit our downside buy price this month; and basically, investors should have their positions now.

The only key is that our Rydex gold trading program is still on the sidelines.  It is just a matter of time, however, before that final key clicks into place.  The next move will take gold solidly over $500.

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As gold probed to the $470 level in September, I was advising readers to expect some profit-taking.  This is not rocket science.  Any time the price of anything reaches an important, old high, sellers will come out of the woodwork. 

Some of these are those typical buyers who, listening to their emotions instead of reason, buy those highs.  Now that prices have returned to those levels, the late buyers again listen to their emotions.  Once they get even, they get out.  The second set of sellers are savvy traders who know that selling at old highs usually makes them some money. 

My advice was for precious metal investors to hold the long term buy-and-hold positions we have recommended at lower levels, but be ready to see some weakness in these markets.

How much weakness?  I think we should see gold throttle back to about 455.00 basis December futures.  In terms of mining stocks, I look for the XAU to hit 100.00 on the downside where it should find support. 

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Commodities are on the move again, spurred on by higher energy prices.  In July, we forecast $12.00 natural gas.  It is going to be an expensive winter!

The consumer has been shrugging off higher energy prices up to now, but we are at the place where the rubber hits the road.  The impact initiated by hurricane Katrina will be sobering for American shoppers.  My feeling is that people are going to make some serious adjustments in their lives, and this will impact the economy. 

We are finally at a point where the public will stop looking at rising energy prices as some temporary phenomenon.  The truth is, we are not out of oil, but we are out of cheap oil.

There are investment advantages in higher oil prices.  We were right on time in advising readers to buy energy trusts in 2002 when crude was still selling for $20 a barrel.  Although I look for crude oil, coal, and natural gas to move significantly higher long term, chasing energy trusts at this point is not a case of buying low and selling high. 

There is some interesting “low-hanging fruit” in all of this, however.  There has been a historical relationship between the price of crude oil and the price of gold.  The relationship is there; but if one needs a reason, the theory is this. 

High crude prices beget high fuel prices, and they depress economic activity.  If high enough, it can cause a recession.  Then the Fed moves to counter the recession by stimulating the economy by initiating inflationary policies.  The recession - along with the overly accommodative actions of the Fed - drives the dollar lower, and gold rises.  At least, this is what has happened in the past.

Aside from such fundamental reasoning, the fact is if you divided the price of gold by the price of crude oil, you would find there is an average of about 16.  Currently, if you divide the price of gold ($450) by the price of crude ($66), you get a ratio of only 6.8.  This means that you can trade a barrel of oil for more gold than any time in recent history.

There are several ways for the ratio to revert to its norm.  Perhaps, crude will fall.  If crude fell to $50 (not likely) and the ratio were to recover to even 12, gold would sell for $600.  If the ratio were to recover to its average of 16, gold would sell for $800, even if crude were only $50.

The dollar is weakening now after a multi-month rally.  This all points to gold as a bargain in today’s market.

We began buying Canadian energy trusts in 2002, and there were those not patient enough to let the investments develop.  We didn’t find ourselves in the wonderful position we are in today without patience and sitting through the ups and downs that inevitably come along the way in any bull market.

Gold truly looks like low-hanging fruit here.  I believe it will come into line with its historic relationship to crude.  Crude is going higher, and gold is apt to explode on the up side without warning.  The safest way to play this market is to invest now while prices are low.   

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As I look over my technical work this month, one area seems to leap out ahead of others – gold.  A major bottom was made in May, and that low is now in the process of being tested.  I have been forecasting gold to come back to about $420 basis December futures; and with a close yesterday at $426, this objective is close to being completed.

On the other hand, the gold stocks (as measured by the XAU and HUI) have held up amazingly well during this test.  That is always a bullish sign.

The U.S. dollar - although still long in our futures work - is nearing a sell signal, and Europe seems to be buying gold as an alternative to the weak euro.  Add to this the fact that the entire commodity sector has been outperforming the rest of the markets this year, and gold looks like a good bet here.

Some tout a relationship between the price of gold and the price of crude oil.  I have seen studies that point out that traditionally gold has sold for 8 times the price of oil. 

If there is any credence to this, with crude selling for $60, gold should be selling for about $480 to $500.  In fact, that is exactly where I expect to see gold move during its next up leg.

As December gold is still a bit above my $420 downside expectation for this adjustment, there is a little time yet, but not much.  The XAU could ease back a bit further as gold bullion completes its correction, but 85 should offer strong downside support for the XAU.

It looks like it’s a good time to buy gold.  I introduced an interesting new junior stock in the July mid-month letter that should easily double.  It sells for about $1.00 U.S.  However, there are plenty of others on our buy-and -hold list.  Don’t wait until gold breaks above $460 like everyone else.  Use weakness to buy now. 

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I have just published a new special report on gold.  The report points out that the ratio between gold and the XAU (Philadelphia Gold and Silver Index, which represents precious metals mining stocks)  hit 5.33 in late May.  Briefly, when this ratio has reached over 5.25 - reflecting that the mining stocks are extremely undervalued in relation to gold bullion - major lows have formed and mining stocks have been a screaming buy.

I publish a list of stocks for buy and hold which is separate from our list of trading stocks.  Something that I do that is a bit different is publish downside buy prices for my recommendations so those who get on board after our original recommendations have some guidance as to how much to pay for the stocks on the list.  As the gold/XAU ratio was signaling that it was time to buy gold and silver stocks, all of the stocks on our list were falling under their maximum buy prices.  The “pickins’ was easy.”  Those stocks have appreciated significantly in the matter of a few weeks … but there is more to come.

I have held to an upside target for gold of $500 for some time.  The next step, however, should be some resistance at $450, and then a leap to $500.  When gold approaches that $500 objective, it will be time to review our holdings and see if we need to weed anything out.  For now, my gold stocks are solid holds.

My outlook for silver is more bullish.  Once it breaks over $9.00, the next stop will be $1l.00.  This should all come to pass this year

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We encountered an excellent opportunity to buy gold over the last few weeks.  All of our favorites hit downside buy prices in the interim, and we are ready for the next rally.

The gold stocks are beginning to act better than the bullion, and that is always a good sign.  I think we are about to see gold bullion begin to cut the close ties that it has had with the U.S. dollar as well. 

For the last few years, gold and the dollar have been moving with a close reverse correlation.  Any day that the dollar has been down, gold has gone up; and any day the dollar has gone up, gold has fallen.  Although the weak dollar is a solid reason to expect higher gold prices in the future, their day-to-day dance looks to be ending. 

I expect to see gold and the mining stocks embark on their own path now, and move higher even during the dollar’s occasional bear market rallies.  Bottom line, gold and silver are headed much higher, as are all raw material commodities.  This is a good time to invest in the select mining stocks on our buy-and-hold list.

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Likely, the best investment opportunity we will encounter over the next six weeks will be in precious metals.  The dollar looks like it will take a stab at a rally here, and that will put some pressure on gold and silver.  I look for gold to back off to about $420.00 basis April futures and silver to drop back and test the $7.00 level.

A bounce in the dollar and a commensurate drop in the metals will bring the mining stocks down.  It will also provide investors with an excellent opportunity to collect positions in advance of the next up leg in gold and silver. 

Our next upside target for gold is $500.00.  Our outlook for silver is more bullish.  Once it breaks over $9.00, the next stop will be $1l.00.  This should all come to pass this year, and weakness this spring will be your chance to get on board.

It may be difficult to make a mistake in this sector.  Very few precious metal stocks will fail to participate to some degree.  I do have my list of favorites, and it includes some select junior mining companies that look very strong.  Most of these are $3.00 to $5.00 a share and, in all probability, stand to at least double.

One of these is Yamana Gold (AUT-AMEX-$3.60).  Couple this emerging producer with a few others from our buy-and-hold list of junior gold and silver stocks and you will have a diversified portfolio that stands to do extremely well over the next 12 months. 

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Gold is a dollar thing.  As the U.S. dollar index rose from its December oversold lows at 80.48, gold fell from its December high at 462.90.  We forecast that the dollar index would recover to 85.75 before moving back into bear mode.  On February 10, the dollar index hit 85.46.  We are left with wondering if this is close enough.

You can see on the chart that the dollar dropped hard from that February 10 high; and at the same time, gold took a strong turn higher.  This may well be the turn we have been looking for.  Several of the precious metals stocks on our buy-and-hold list fell to or under our published downside buy prices, and we have advised readers to nibble at the likes of NovaGold this month.

You should be prepared for one last probe at new rally highs in the dollar.  We expect that barring some exogenous event, the dollar has a little life left yet.  That 85.75 upside target can still be reached. 

Gold investors should use any further weakness this month to add to positions.  We have seen the correction in these issues that we were anticipating, and it is time to buy for the next bull market leg in the metals.

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I keep preaching that gold is a dollar thing.  As the dollar falls, gold rises; and as the dollar rises, gold falls. 

The dollar caved in during the last quarter of 2004.  The dollar index fell from 90.00 in early September to a low of about 80.40 at the end of the year.  Our outlook at that time was that the dollar was due for a technical correction.  We warned investors the last time I updated the report on this model indicator not to chase the gold stocks.  The dollar was due to rally, which would put pressure on gold and the precious metal mining stocks.

As we plow through January, the dollar index has moved up from the late 2004 lows to 83.00 plus recently.  This rally doesn’t show any signs of being over yet, however; and I have a technical target of 85.75.  Bottom line, it doesn’t look like the technical correction in the dollar has sufficiently relieved the oversold conditions at the year-end low, nor has gold finished its correction either.

The good news is that although there is more time left in the dollar/gold correction, it is time to take a look at buying into weakness.  The XAU, which is currently trading at about 94.00, should drop under 92.00.  At that point, we will be giving traders specific instructions as to where to buy the Rydex Precious Metal Fund.

I have added a new junior gold stock to our buy-and-hold list.  I will also be recommending another stock in the February monthly letter that I am currently researching.  Our buy-and-hold list includes several attractive precious metal mining stocks that are approaching our downside buy prices, including a favorite silver issue that I wrote about in the January mid-month newsletter. 

I believe that silver will outperform gold during the next bull leg in the precious metals.  Bottom line: it is time to begin setting your sights on buying gold and silver related investments during further weakness. 

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Gold is a dollar thing.  It’s that simple.  The U.S. dollar has been falling like a rock, and gold bullion has been hitting multi-year highs.  Such is as it should be.

Most investors make the mistake of forecasting with a straight edge.  Unfortunately, the market does not work that way.  A recent example of this can be found in the excitement in the oil market this October.  Investors were falling all over themselves to load up in the face of our warnings that oil prices had gone too far too fast.  I warned that it was time for a correction in oil.  Sure enough, that has come to pass.

Recent dollar weakness is a mirror image of the bullishness we saw in oil last October.  Today, it is difficult to find a dollar bull anywhere.  The media is rife with news on this or that country that is going to unload their dollars.  Greenspan and Snow are being quoted as dollar bears.  Yes - just as it seemed a couple of months ago that oil was destined to rise straight to $100.00 a barrel - the dollar is being seen as being in a no-brainer collapse to zero.  

This overwhelming bearishness is warning #1 that a dollar rally is in the offing.

The second problem with gold is that the mining stocks have failed to keep up.  They failed to match the highs in gold last April, and gold fell back hard.  They are offering that same “negative divergence” in today’s market. 

This could be resolved by the XAU and HUI heating up and charging over their 2003 highs.   Or, it could be resolved by gold bullion selling off.  In my experience, it has been gold that has brought such anomalies into line in the past.

Silver also has not exceeded its April 2004 high.  A third warning that buying into the strength here in gold is ill advised.

I am now advising that investors look for a dollar rally.  This will not be anything like the upside correction the dollar staged from February through May this year.  I am expecting a technical bounce up to perhaps 86.00 or so in the dollar index from its current level of 82.00.  This will be a normal technical adjustment to temper the oversold condition created by too many dollar bears.

Longer term, I see the dollar index at 60.00.  It may go even lower; but right now, it is time to approach the markets - especially the metals - with the idea in mind that the dollar will strengthen here temporarily.  During that rise, the next opportunity to buy gold and the mining stocks will be created.

Bottom line then:  Don’t chase the current strength in gold.  Hold what you have, but there will be a better time in the next month or two to buy the precious metals. 

First of all, you have to realize gold is just another foreign currency, but it is one that cannot be artificially influenced by Central Bank policy.  While the Central Bank of any country can control the supply of their currency, they cannot control the supply of gold. 

They can sell gold into the market - or threaten to - and temporarily depress its price, but the supply of gold is dependent on discovery.  The only way to increase the supply of gold is to dig it out of the ground.

Hence, the future price of gold is dependent on the current and future price, if you will, of the U.S. dollar.  As the dollar falls, the price of gold in dollars will rise.  It is not an immediate relationship; but over time, cheaper dollars will equate to higher gold prices.

The dollar index has just broken below support at 87.00 basis the December futures.  However, there is a solid base of support at 85.00 where I expect we will see at least a pause in the dollar bear market, if not a rally back to the 87.00 level.  Once support is broken, it becomes overhead resistance.

My long term forecast for the dollar is to see it fall to at least 60.00.  My long term forecast for gold is to see it surpass the highs set in 1980.  Gold should easily be able to advance to $1,000, if not further.  

Consequently, you should own some gold.  However, near term, I am expecting a bounce in the dollar from the support at 85.00 and a corresponding decline in gold.  This drop should extend into November.

The point here is that this will be an excellent opportunity to buy precious metals and precious metal stocks.  We will be updating subscribers this month as to just where and when they should buy our recommended gold stocks.  The November lows in gold will be a “once in a lifetime” opportunity to buy gold.

In August, I published a special report on gold wherein I called for a cyclical low to be followed by a high in October.  Dutifully, gold dropped briefly and then ran to $416.  It has been sauntering in a trading range between $400 and $410 ever since. 

The XAU (representing the mining stocks) behaved similarly.  It posted a low in August and then ran to a high of 96.24.  Since, it has been locked in a range between 91.00 and 95.00.  All in all, September has been a dull month in the metals.

The report went on to forecast a cyclical high in October and then a final selloff to lows in November.  At this point, I look for one more shot at the top of the trading range in both gold and the XAU, followed by a decline.  I expect that decline will break below the September trading range and will stir up a lot of bearish talk about gold.

The exciting part of all of this is that it will set up what I expect will be the final low in gold before the next intermediate up leg unfolds in the bull market that began in the precious metals some four years ago.  It promises to last some years hence.

Downside targets for this final selloff are difficult to pinpoint this early, but the XAU should come off to about 84.00, and gold should touch $385.  There is a possibility that these values might extend to their May lows, but we will be refining the targets as well as specific buy points for our recommended mining stocks as October passes.

Bottom line is that the secular bull market in gold still lives, but the cyclical bear market correction that began earlier this year is about to end.  In the last decline will be found a splendid opportunity to buy gold stocks for those willing to wait for the approaching lows. 

 Chart courtesy of www.futuresource.com

Chart courtesy of www.barchart.com

Gold continues to improve technically.  We have been focusing on these two weekly charts - one of the U.S. Dollar Index and the other of gold.  Note the MACD patterns.  The dollar has had a sell and then an intervening “buy.”  Gold has been just the reverse, showing a buy and an intervening “sell.” 

The next expectation is to see a second buy in gold and a second sell in the dollar.  Second sells have usually been the best of the MACD signals in my experience.

Gold is a dollar thing.  Once the dollar begins its next bear market leg down, gold will move over those highs at the $430 level and leave the $400 barrier behind for good.

Charts courtesy of www.futuresource.com

Gold has been performing quite well recently after putting in a low at $375 in May.  The dollar is apparently turning down, and the next rally phase in gold is getting under way.  The upside reversal on the weekly chart for July 9 is quite constructive, as is the MACD “buy” on the weekly chart. 

I expect gold to struggle in the short term, and that should give us a chance to add to our gold positions.  The underlying trend is still up, though.


Chart courtesy of www.futuresource.com

After being beaten down hard in April, gold was able to get back up off the mat and rally in May.  We are now at a point where I expect to see some profit-taking from traders who bought in at the lows.  This will push prices back again, but my Hyperion trading model and my Rydex gold model are both setting new buy points.  Weakness in June will be a buying opportunity for gold and gold stocks.

The U.S. dollar is also instrumental in this since precious metals and the mining stocks benefit when the dollar is weak.  My work says the dollar’s little bear market rally from lows in February is over.  Yes, there will be the obligatory wiggles up and down as traders vie for their positions, but the longer term  fate of the dollar is to see much lower values against the euro, yen, and other major currencies - as well as against gold and silver.

In the next letter, I will be presenting an interesting “no risk” way to position in the gold market.  I think you will enjoy this as it carries virtually no risk and offers an amazing profit potential.

The recent rally in the U.S. dollar has dampened our precious metal investments, but the tide is close to turning.  The RSI oscillator on the XAU hit extremely oversold lows of 26 on April 21st.  Although sometimes they have occurred a bit before the actual lows are in, readings this low have preceded major rallies in the past.  We look for some base building here and then another move to new highs.

Chart courtesy of www.bigcharts.com

Gold bullion has sold back to support at 390; and so far, it is holding that level.  This would appear to be an excellent time to buy gold stocks, and we will be refining that timing in our Web site hotlines and subsequent letters.

 Chart courtesy of www.futuresource.com

Some time ago, I began employing a model to tell us what asset class would hold the best promise for the coming year.  After all, fully 85% of one’s success in investing depends on being in the correct asset class.  Only 15% depends on being invested in the right stocks.  The tremendous advantage this model gives us is obvious.

I call this model the Annual Asset Allocation Model, or AAAM.   I calculate it each October in order to find our direction for the coming year.  In October, 2001, the model moved from bonds to tangibles.  This is the most important asset shift the model has indicated since moving into stocks in 1982. 

There is no need to calculate the model more than once each year (in October); but simply out of curiosity, I ran a check on the numbers yesterday.  As I expected, the advice given was unchanged.  The best asset class is still tangibles.

There are many ways, of course, to exploit investment opportunities in tangibles.  In the stock and commodity markets, the best of the best is gold and silver. 

Our Hyperion trading model is long both gold and silver, and we are beginning the first stages of the next leg in the gold bull market that began some two years ago.  After stepping aside to money market funds while the gold market underwent a sizable correction over the last several months, we recently moved back into the Rydex Precious Metal Fund.

This is an excellent time to buy into gold stocks.

The correction in gold and the mining stocks - which we warned readers about at the end of the year - has unfolded on schedule.  We posted downside buy prices for our recommended gold stocks, and all but a couple of them have hit those levels.  Many have already moved smartly higher from those levels.

Our current outlook is that the correction may have one more downside dip over the next couple of weeks.   We then expect to be on the way to new, multi-year highs in the gold and silver stocks.

Gold bullion should also find support at the 380-390 level if another wave of selling hits.  The key here is to use further weakness to accumulate positions in our recommended gold and silver mining stocks.  Put your orders in under the market on a “good ‘til cancelled” basis, and then sit back and wait.

Charts courtesy of www.futuresource.com

For several weeks, we have been forecasting a sell off in bullion as well as the mining stocks.  Finally, the correction is underway.  We had scaled back our position in our Rydex gold trading program to 25%, and we have now gone to a 100% money market position.

I was not anticipating the double top that formed in the XAU; and consequently, I look for the XAU to fall further than I originally anticipated.  I think we will see it fall somewhere below 90.  A convenient target would be 85, but you should be prepared for an interim rally.  Look for a bounce and then a final drop to the ultimate lows in this correction.

The process will likely take us through the month, but do not lose sight of the bull market in gold.  This is all just a profit-taking spree in an ongoing bull market.  I feel very strongly that gold will reach $550 in 2004.

We will be using weakness to add to our buy-and-hold positions in gold and silver, and we will scale back into the Rydex Precious Metal Fund when our technical tools give us a green light.

Bullion prices should remain under pressure until the end of the month.  It is encouraging from the bull’s point of view that sharp breaks in price are attracting buyers.  My favorite gold stock is Goldcorp, which can be purchased for long term accounts here.  I would be very excited to see it drop back to support at 15.80 where you should add to existing positions.

Gold has topped out temporarily - as we forecast when we dropped our Rydex exposure back to a 25% invested position.  However, that is really water under the bridge at this point. 

Our cyclical work is pointing to a low in gold later this month.  We must use weakness now to add to our precious metal positions.

We have updated our instructions telling Rydex Precious Metal Fund traders where to increase their positions, and we have updated our downside buy prices on both our buy-and-hold stock lists.  We also added downside buy prices to our list of junior gold and silver stocks.

The important thing to do now is to use weakness to add to your gold and silver positions.

I look for gold to surmount the $400/ounce level and for silver to break decisively over $6.00/ounce by the beginning of next year.  Now is the time to position for that move. 

Our Hyperion trading model is long both gold and silver futures, with good profits to date.  We also have a nice 50% position in the Rydex Precious Metal Fund.   We are looking for a slight, temporary pullback here with the next cyclical top due in October.  We will be buying into any short term weakness we see this month.

We added a couple of interesting silver mining stocks to our list of junior mining companies this month.  The rest of the list is doing very well.

Gold should be able to reach the $400/ounce level by year’s end, but I expect an intervening buy opportunity will occur between that event and the cyclical high due in October.

Our Hyperion trading model is long both gold and silver futures, with nice profits to date.  We also have a nice 50% position in the Rydex Precious Metal Fund.   However, it looks like we should see the metals back off a little bit here, at which point we intend to bring our Rydex position up and add to positions we already hold in gold and silver mining stocks.

Our downside target for gold is 350.00 basis August futures.  For silver, it’s 490.00 basis September futures, and 78.00 for the XAU. 

Once this correction is over, we look for a significant move in the entire precious metals complex.  

We believe that we are at a minor cyclical high in gold as well as gold stocks.  Bullion has already started down from its May high at 375.80 basis September.  The XAU and HUI appear to be just now starting their descent.

Our Hyperion model covered its short in the U.S. dollar and is now long.  This adds support to our forecast for a correction in gold.  We look for the dollar to rally to the 98.00 level, which was a level of past support.

The next point in our cyclical work calls for a low later in July.  At that point, we look for a splendid buying opportunity. 

We anticipated the acceleration of the dollar’s decline once the June futures broke below 98.00.  However, I am a bit disappointed by the lethargic rally we are seeing in gold.  Perhaps it is just what we should expect in the early stages of a bull market.

Nevertheless, gold is not as strong as I anticipated.  We are holding a 50% position in our Rydex gold trading program as a consequence.

Another minor problem is that our Hyperion model has not triggered a buy signal in gold futures, and it has only bought two of the gold stocks we follow on the list.  On the other hand, the Hyperion model has a buy in effect for all of the silver stocks we follow - and for silver futures also. 

All in all, it is a mixed bag at this point.  We are partially long and are making a little money, but our cyclical work is pointing to a high for the end of this month.  Perhaps it’s time to be looking for sell signals rather than buys.  Any changes, of course, will be announced on our thrice weekly hotline reports.

Our Rydex gold model has moved back to the Rydex Precious Metals Fund now.  The XAU appears to be basing, and we anticipate the next up leg to extend into early June.  The U.S. dollar also went on a sell on April 17, which supports our current long position in the XAU. 

Our Rydex gold model moved us out of the Rydex Precious Metals Fund and into money market funds on February 10.  Since then, the Precious Metals Fund has fallen over 11%.   However, I am seeing signs of basing in my technical work now.  It’s time to be alert for buy signals.

The U.S. dollar is important to the trend in gold - both in the longer term and the shorter term.  As the dollar falls gold will rise.  The opposite is also true, and the dollar has recovered about 4% from its low of 98.05 June basis.  The dollar is not going to run away on the up side here, and gold is forming a base.  It’s time to pay attention and be ready to act when our gold model tells us it is time to move back in.  We will have updates on the hotlines.

Our Rydex gold model moved us out of the Rydex Precious Metals Fund and into money market funds on February 10.  Since then, the Precious Metals Fund has fallen about 6%.   However, that is all water under the bridge at this point.  We are anticipating that a new buy point will develop soon.

The dollar continues to fall, and this will lead to higher prices for gold and silver.  Be patient, and wait for our buy requirements (as laid out on the hotline reports) to trigger.

Our gold model put over 40% profits in our accounts during 2002, and we are expecting another grand year for gold traders in 2003.

An interesting study we featured in our November mid-month letter described how ASA Ltd. has produced an average profit of 87% a year by making purchases during the fourth quarter. 

Our Hyperion model bought ASA on October 29 at 30.60, and it is already ahead by over 30%. 

We are now advising readers where to add to this position and what steps they should take with their gold investments for 2003.