489.50 gold to boom boom tonight!, page-17

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ALL ABOARD?
Peter Degraaf
Life is a continual series of cycles, from the 1 second cycle during which the heart pumps blood through the human body, to the 1,000 years it takes to complete a millennium, virtually everything moves in cycles.

The price of gold is no exception. There is an observable 7 - 8 week cycle that is followed by many traders. This 8 week cycle can even be sub-divided into two 3 - 4 week cycles.

In this article I would like to introduce a seven month gold cycle. This cycle has it's beginning at the bottom of a correction, which lasts at least a calendar month. The cycle ends at a new high preceding such a correction. The percentage increase in the price of gold during the cycle ranges from +15% to +32%, for an average of 22% over the 6 cycles that have occurred since this gold bull market started in 2001.

These 6 cycles have lasted an average of 146 trading days, or app. 7 months. (Using 20 trading days to complete a month).

The first one began April 2001 and lasted till Sep 2001, a total 121 trading days, with a 15% gain, from bottom to top.

The second one started in November 2001 and ended in June 2002, 130 trading days, with a 21% gain.

The third cycle had it's beginning in July 2002 and lasted 131 trading days, ending February 2003, with a gain of 25%.

The number four cycle began in April 2003, and ended 192 days later, in January 2004 with a gain of 32%.

Cycle number five started in May 2004, and ended during November of 2004, and took 141 trading days, while the price of gold increased by 20%.

The sixth cycle, and the last one in this series, began in February 2005, and ended in October of this year, lasting 159 days, after a 17% increase in the price of gold.

Those among you who share my conviction, that the latest correction in the gold price has run it's course, and that a new cycle is currently underway, can use the past performance of the price of gold, to anticipate the approximate length and % rise of the next cycle.

I believe that cycle #7 started the first week in November, for a number of reasons. Among them are:

* The ratio between gold and oil, which for more than a year has favored oil, has decidedly swung back to favor gold.
* The ratio between the HUI index and the oil index, likewise has convincingly moved back to favor the HUI.
* The HUI index of unhedged gold stocks has carved out a bullish 'cup with handle' formation.
* The HUI index compared to gold bullion (www.stockcharts.com $HUI:$GOLD), has moved back above the moving averages.
* The price of gold has just broken out above resistance at $480, after failing to break down below $460.

My conclusion, based on these technical observations of the gold price, is that cycle #7 is underway. It probably began on Nov 7 2005 AD. By adding on the lowest number of days from the previous 6 cycles (121 days), we arrive at app. May 9, 2006 AD, for our next top. By adding on the AVERAGE number of days, (146 days), we come to app. June 12th, for a new top.

While nothing is etched in stone, except for the Ten Commandments, it does give us a reasonable expectation for the duration of the cycle, (which could go even longer, as cycle number four lasted 192 days).

As for the actual gold price at the next peak, using the lowest percentage increase of the past six cycles, (15%), I would reasonably expect $455 + 15% = $523. Applying the average price increase, (22%), we arrive at $555 .

The most practical application of the 7 month cycle is that is gives the trader a sense of confidence during the early setbacks of the move. It helps one to 'stay the course'.

It still makes sense to use protective stops, but they can be a safe distance behind the point of entry, to allow for price swings.