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Gold Sector Outlook Strategy Update

By Lou Paquette, Contributing Writer and Editor of the Emerging
Growth Stocks Newsletter
October 2002

My forecast for 2002 was for gold prices to get over $300 and stay there. I anticipated a test of the $330 area - the breaching of which signals the continuation of an early stage bull market. Gold prices averaged $302 in the first half of the year and have recently now testing major resistance at $328/330. So far, so good. Time to re-evaluate.

The July Issue entitled - "Is it Capitulation yet?" was out six days after the sector had done just that, completing the vicious correction that had commenced in early June. However, bullion prices broke out of a "Falling Wedge" formation as September began and have since crept right back up to test major resistance at the June high of $327.80.

Breakout of "Falling Wedge" formation early September
testing resistance at $327.40

Meanwhile, the senior gold stocks have retraced much of their recent losses. But the micro cap gold explorers have lagged behind this move and I suspect nothing less than a major new discovery and/or a break in bullion prices decidedly over $330 will be enough to get them moving forward again. My guess is this could take place in the first quarter of 2003. We are so close already. And whatever commodities sector is hot every year, it typically seems to make solid gains in the first quarter. Moreover, the prospect of a military showdown with Iraq getting underway as early as January can only help spur on the next rally for gold and gold equities.

Thus, after a correction coinciding with the November pullback on the seasonal gold chart, I fully expect yet another testing of the $330 resistance level in the new year. This time, however, I expect it to be successfully tested with a subsequent breakout, making $330 a new support level. The game will be on again and gold stocks should rally strongly. Hence, my 12-month target for bullion is around $350.

Ten-year gold chart revealing long-term uptrend

Louis Paquette is an independent research analyst based in Vancouver, British Columbia. Louis is a regular contributor to Investor's Digest of Canada, Bull & Bear, The Money Saver, and is on the Cambridge House Investment Conference circuit. EGS is available through direct subscription, or at Baystreet.ca and Infomine.com, and his specialties are finding value and growth situations sector analysis and market timing. In the past year, EGS has turned bullish and bearish at profitable intervals in the Technology, Energy, and Gold Mining sectors.

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