|
THE
HUI "Gold Bugs" INDEX PREDICTED THRU 2004 Background: In the 1980s, a friend traded a 13-week cycle in gold prices and made a nice profit for many years. The 13-week cycle is still present in the HUI Index but does not appear to be the largest cycle or tradable any longer. There are currently fourteen discrete cycles in the HUI Index. The shortest cycle was 13.8 days and it appears for this dataset that the longest cycle maybe around 1400 days. There are longer cycles in gold prices and it is possible there could an eighteen year cycle in a much larger dataset. Research Results: The daily closing prices from Jan 1996 were used in the dataset to determine the key cycles in HUI Index price pattern and used for the prediction assuming the long-term cycles continue to hold. The largest cycle currently in the price data is a 192-day cycle which is approaching a top in Aug/Sept 2004. Chart 1 show the 61-day (13-week) cycle of HUI Index from the period beginning in Jan 1996 thru June 2004. This cycle started to decay from a top in April 1998 to a low point in Feb 2000. The growth in this cycle (and other cycles) does appear to correlate to some type of Central Bank decisions regarding the sales gold from 1998 thru 2000 and beyond. However, it is difficult to define a real trend line for the HUI Index. We adopted the conservative approach of taking a linear trend (i.e., may become parabolic later) which has a slope of $35 a year increase in gold from 1996 but further research is needed into why the trend line shows such volatility – very unusual for a commodity. Chart 2 shows the largest cycle in the HUI Index which is 192-days. It appears this cycle has become significant since Feb 2000. It may be a cycle that represents the trading of commercials and /or Central Banks because the amplitude is large and it is very periodic but growing larger. This may not be a stable situation for the HUI Index and this cycle will be again approaching a top in Aug/Sept 2004. Chart 3 shows the comparison of the actual detrended HUI Index versus the 192-day cycle. It appears this cycle came into play starting about May 1998 and the relative tops in the HUI Index follow this cycle. This cycle would be one of the candidates to follow to see if it indeed is being used by Central Banks and Commercials. Chart 4 presents the long term prediction for the HUI Index thru 2004. The current cycles in the waveform strongly suggest a major downtrend coming (starting as soon as mid-July 2004) which will bottom in late 2004. Chart 5 is a wild guess (found in mayo jar outside of the NASDAQ Exchange during a full moon) as to the behavior of the HUI Index in 2005. It suggests a coming rally in the HUI Index followed by a double top and a sell-off with a bottom in the Fall of 2005. This will mark the beginning of the Great Bull Market in gold stocks and slowly but surely they will lift-off like a small albatross around the Fed’s neck. Summary: 1. The HUI Index follows a combination several long cycles including a 13-week cycle as well as 130-day, 192-day, 262-day, 318-day and 510-day cycles. In particular, the long-running 13-week cycle shows it was reinitialized in Feb 2000 which coincided with Fed-meeting involving gold sales. The low in the 13-week cycle (as well as other cycles) occurred in Aug 2000 and the HUI Index began a major rally. 2. A major downtrend is coming up for the HUI Index starting/after July 2004. It appears this downtrend may propagate through the remainder of 2004 leading to a broad bottom in the HUI Index in Nov/Dec 2004. You may wish to refrain from further gold stock purchases until this situation becomes clearer. It is dangerous to continue to invest in gold stocks at this point if these long cycles persist through the remainder of 2004. There may be a short (bear) rally in the HUI Index during Aug/Sept 2004 but the overall prediction is down. 3. The HUI Index is probably making its highs on the year. There is another major rally in the HUI Index coming in early to mid-2005 followed by a double top (currently predicted in March and June 2005). The (relative) bottom in 2005 is predicted to occur Sept 2005. 4. The 192-day cycle in the HUI Index is suspect as a real trading cycle – it has the largest amplitude but appears out of nowhere sometime in 1998. It started growing in May 1998 and has played a major role in the timing of the HUI Index (together with other cycles). This cycle is projected to bottom in Dec 2004 (leading to a Rally) and again in late Sept 2005. Unclear who is involved in the 192-day cycle growth at this point? 5. Gold Bugs should keep their cash dry at this point and consider avoiding further long-term speculation in gold stocks (exception may be Newmont off its 200 dma and we will take a future look at this particular bell-weather stock). A significant rally is in the offing in the HUI Index after Nov 2005 leading into 2006 6. Good News – Bad News. There is a coming major rally in the HUI Index but it is not this year. We are predicting the real major bull market in gold stocks will begin in late 2005 and many of the gold-producing stocks may never look back again after 2006.
CONTACT
INFORMATION |
