"Time is more important than price; when time is up price will reverse." -W.D. Gann

W.D. Gann spent many years studying the history of markets going back centuries. While researching commodities and commodity markets he discovered what he called Master cycles of 30 and 60 years. I have continuously posted charts of gold and silver bullion that demonstrate the remarkable similarity of timing between our current bull market in gold and silver and the bull market of the 1970's. Major highs and lows have occurred within weeks of each other. However gold and silver bullion have demonstrated that they are on a different time schedule from the gold and silver shares.

A major confirming tool for the Gann cyclical studies is the fact that a Delta long term turning point always arrives at all major highs and lows. Students of Delta know it could not be otherwise. I also use my own form of monthly wave counting. I have found the monthly form of wave counting to be the most useful. Tracking every single tiny wave movement intra day and then trying to put it together in order to see the large picture is similar to putting your nose next to a Rembrandt painting. If you do that you can not see the entire picture. You must stand at a distance in order to see the beauty of the entire work of art. However my approach to wave counting is considered heresy by die hard wave enthusiasts. So be it.

It was monthly wave counting that enabled me to see the top and a completed 5 wave move in the HUI precious metal shares index in January 2004. I mentioned this on a particular web site populated by gold bugs and, to say the least, had my competence and intelligence seriously questioned. That was O.K. by me. The reason their comments did not "bug" me was that they were just another small confirmation of the correctness of my opinion. When I saw the top in the HUI, I had no idea what kind of a correction we would experience. Many weeks passed before I caught a glimpse of the type of correction we were having. It turned out to be a flat type of correction that may be ending with one more move down and it may complete in late July or early August.

If this assessment is correct we should then have a strong move back to the old high in the HUI. If the HUI bottoms in the 140 to 150 area there will be an opportunity to make a substantial profit if it returns to the 265 area which was the previous high. At that point in time, when and if we reach the old high, we will have another difficult decision to make. I have mentioned this before but it may be worth mentioning again. The flat type correction we are in may become what is called an extended correction and may look like one of these. You can see that the flat part of the correction is what we may be completing in a number of weeks. Notice that the "any three" part of the correction happens in about one third of the time it takes the flat part to complete. Once the move up begins it may be possible to obtain substantial profits in six to eight months.

The reason I am mentioning the possibility of an extended correction is because this is what happened to the precious metal shares 30 years ago, although they had a "zig zag" type of correction not a flat type. A "zig zag" has a lightening bolt appearance and represents a substantial decline. In the same items, amazing as it may seem, corrections do tend to alternate in type even 30 years apart. The gold and silver shares topped in 1974 and had a severe decline and did not begin a major rise until 4 years later in late 1978. Many commodities are following the 30 year "Master Cycle" not just gold and silver and the gold and silver shares. Of course it may be different this time around for the precious metal shares and they may not undergo an extended correction. However it is important for us to keep this probability in mind if and when the HUI has a substantial rise. It may be prudent for you to take some protective action when and if we get back to the old high. The kind of protective action where you sell and take enough profits to buy puts on the position you retain.

O.K., I know I am way ahead of myself. We have yet to bottom and start up. However I like to think ahead, based on the past, and not scare everyone as we approach a possible top area. It is better to be aware of the possibility ahead of time. If and when the HUI gets back to the old highs we can be assured that many folks will be screaming, "This is it. The shares are taking off in a huge bull move" They will have all kinds of fundamental and technical reasons why it is happening. They may be correct but I will be examining the possibility of an extended correction and keeping everyone posted. Hopefully it won't happen, but too much of the 30 year cycle in many areas is repeating for me to totally ignore a possible extended correction. If it happens you will have another opportunity to buy "cheap" stock. If it doesn't happen your P.M. shares will just keep on increasing in value.

So here's to increasing values for all.

For the more conservative minded there is the Tocqueville Gold Fund. It is a no load fund. The fund is charged a one and five eights (1 5/8 %) annual advisory fee. The application and prospectus can be downloaded from the internet. John Hathaway is the manager and he has done well. The gold fund paid about a 4 1/2 % dividend from capital gains last year. I do not receive any form of compensation from anything I may mention.

Overview of the HUI

For those who would like to have a portfolio of precious metal mining shares there is the HUI and XAU.

Two major gold indices dominate the market--the Philadelphia Stock Exchange's XAU and the AMEX's Gold BUGS Index (HUI). The major difference between the two is that the BUGS index is made up exclusively of mining stocks that do not hedge their gold positions more than a year-and-a-half into the future. This makes the BUGS Index much more profitable than the XAU when gold prices are rising, but can also compound its losses when gold declines. BUGS is an acronym for Basket of Unhedged Gold Stocks. The index was introduced on March 15, 1996 with a starting value of 200.

Ron Rosen
 

to be continued.