There is a possibility of a blow-off decline in the Dollar and the stock
market over the next 2 weeks in parallel with a surge in bonds and gold.
However, this would actually be a less-bearish scenario for the Dollar and
less-bullish scenario for gold than we currently have in mind as it would
most likely result in a medium-term bottom for the Dollar and top for
gold. Taking a 3-month view it would potentially be more bearish for the
Dollar (and, therefore, more bullish for gold) if the Dollar now rebounded
for 1-2 weeks before resuming its decline. The September bond contract
would give us an early warning that a short-term blow-off may be about to
occur by closing above 104-05/32. More on this in Thursday's Interim
Update.

The 'choppy' action continues in the stock market. As noted above, there
is the potential for a 'wash-out' decline over the next 2 weeks. If this
occurs it would be unlikely to breach the April lows and would probably
set up a low-risk buying opportunity. As things currently stand in the
stock market neither the long side nor the short side looks attractive.

On Tuesday the Bank of Japan (BOJ) announced that it would be stepping on
the monetary gas pedal by raising the target for commercial banks' excess
reserves and increasing its monthly bond purchases. The goal is to boost
prices by increasing the supply of Yen. If the Japanese are really serious
about expanding the supply of money they should hire Alan Greenspan to run
the BOJ and create Japanese equivalents of Fannie Mae and Freddie Mac.

The initial reaction of the markets to the BOJ's surprise move was to send
the Nikkei sharply higher and send the Yen lower, but the Yen subsequently
rallied during US trading and, at the time of writing, the Nikkei is down
during today's trading in Japan. On Monday the Nikkei dropped to near its
March-2001 intra-day low of 11433 (it actually penetrated this level
briefly before closing the day slightly above it). Monday's decline was a
test of the low reached a couple of weeks earlier that was, in turn, a
test of the low reached in March, and will act to weaken support. If the
Nikkei returns to the 11400-11600 area in the future there would be less
chance that support would hold.

Below is a link to an article on the coming major bull market in
commodities. Apart from the comments on gold, the timing outlined in this
article is quite close to our own view.
http://www.consensus-inc.com/newsletter/feature.htm

Note - the probability of blow-offs in several markets over the next 2
weeks is low, but will increase markedly with any further weakness in the
Dollar and strength in bonds. The more likely outcome over the next 1-2
weeks is that the Dollar will rebound, stocks will continue their choppy
consolidation and gold will experience a shallow pullback.

Alert #45, Aug-10 2001
The markets have started to liven-up a bit over the past couple of days.
These past 2 months have been slow, to say the least, but things now seem
to be speeding up and we are beginning to have some fun again.

The gold market has disappointed us more than once so far this year by
providing some confirmation of strength and then not following through, so
we are more wary than we might otherwise be after Thursday's $5 bounce. A
$5 bounce in itself is not significant, but it did cut through short-term
resistance and gave us the highest daily close since June-26. The daily
chart for the December gold contract highlights the magnitude of
yesterday's jump compared to the distinct lack of movement over the past
several weeks: http://tfc-charts.w2d.com/chart/GD/C1

As we've previously noted, the 5-year downtrend in the gold price would be
broken with a decisive close above 280. Those who are heavily short
physical gold are therefore likely to try very hard to defend the 279-282
area. Once above the low-280s the 'shorts' will need to start planning
their defence of 325, and once through 325 they'll need to start worrying
about 375-400. Are we getting ahead of ourselves? Of course we are! Let's
keep the champagne on ice at least until we see how much follow-through,
if any, there is to Thursday's bounce.

The Dollar has ignored an oversold condition for the first time this year
and has fallen to new lows for the move. The press keeps reporting that
the Dollar is dropping due to concerns over the slowing US economy, which
is garbage. Economic fundamentals had nothing to do with the January-June
rally in the Dollar and they have nothing to do with the current decline.
More on this in the Weekly Market Update.

We have a trading position in Normandy Mining August $1.10 call options
shown in the TSI Portfolio. Since these options expire in less than 2
weeks we've sold them for a profit of 100% and switched into the November
$1.25 calls (purchased at 4.5c).

Alert #44, Aug-08 2001
Most of the markets remain range-bound and about as exciting as watching
grass grow, although there has been an interesting development in the
silver market. From the July-30 WMU: "Silver's technical condition is more
precarious than gold's. On July-18 silver dropped to a marginal new low at
$4.19 and then reversed higher, thus providing some preliminary evidence
that an intermediate-term low was in place. However, although silver
futures have subsequently held above their July-18 low there has been no
follow-through to the upside. There is, therefore, a good chance that
silver will drop to a new low before a rally gets underway. The good news
is that if this is going to happen it will most likely happen very soon
(the next several days)."

On Tuesday the silver price dropped decisively below its previous lows, a
potentially bullish development because it may be heralding the final
wash-out stage in silver's bear market and setting the scene for an upward
reversal over the coming week. When a price spikes downward after a
drawn-out decline it is usually the culmination of something, not the
start of something.

In the latest WMU we mentioned the likelihood of another near-term
pullback in the stock market. This pullback probably began on Monday, a
couple of days earlier than expected but generally in line with our
assessment of short-term sentiment and technical indicators. Rather than
making a large break downwards we expect a continuation of the type of
action we've seen over the past 2 months, that is, the market will reverse
higher just when it appears to be about to break lower and reverse lower
just when an upside breakout appears to be in the cards. The action (lack
of action) is frustrating for almost everyone (bulls and bears), but will
lead to a large move when a breakout does finally occur. We are on the
lookout for an opportunity to initiate another trading position in QQQ
shares or call options, but such an opportunity has not yet presented
itself.

The US$ has commenced its anticipated counter-trend rally and is likely to
move higher into next week, thus making it difficult for gold and gold
stocks to make any upside progress in the very short-term. Beyond the very
short-term the happenings in the currency market are bullish for gold. In
tomorrow's Interim Update we'll take another look at the relationship
between gold and the Swiss Franc and see what it tells us about the likely
timing of a gold rally.

Lastly, a quick comment on the preliminary Q2 productivity report that was
released on Tuesday. The preliminary estimate for productivity growth
during the second quarter was +2.5% versus expectations of +1.5%. Q1
productivity growth was revised higher from -1.2% to +0.1%. Productivity
growth for the whole of last year was revised lower from the +4.3%
originally reported to +3.0%. 1999's growth rate was also revised lower.
Output growth for the second quarter of this year will almost certainly be
revised lower in the future (the Q2 GDP growth rate may be negative when
the final calculation is done, compared with the current estimate of
+0.7%), which means that the final Q2 productivity growth figure will be
lower than the +2.5% reported yesterday (it will probably be closer to
+1.0%).

Fortunately, the financial markets pay far less attention to this
government gobbledegook than do the financial media and yesterday's
productivity report was greeted appropriately - with a yawn.

Alert #43, Aug-01 2001
Stocks:
Last week's brief spike below the July-11 lows that turned a number of
technicians bearish may have established the bottom for this correction,
but more evidence is still needed. We think the best time to initiate a
new long-side speculation will be during the pullback that will likely
follow the current rebound. If the Fed surprises the market with an
inter-meeting rate cut now, thus causing the indices to spike higher,
there would probably still be a nervous pullback (a buying opportunity)
thereafter. Until the market is able to break-out above recent highs the
short-term technical picture will remain precarious, but we continue to
expect the major stock indices to reach much higher levels over the coming
3 months (with or without a 'push' from the Fed).

The US Economy:
Economic data that reflect the current conditions continue to show
significant weakness, which is as expected. On Friday we get the latest
issue of the Employment Report. A lot of attention is always paid to the
Employment Report even though today's employment numbers are an indication
of what the economy was like 6 months ago (they tell us what everybody
already knows). Of greater interest to us is what the economy will be like
6 months from now (based on the leading indicators that have the best
record over the past 40 years, it will be considerably stronger).

Bonds:
Bonds have recently been supported by the lack of any obvious upward
pressure on producer or consumer prices, but have not been particularly
strong given an environment that is, on the surface, 'bond friendly'. We
expect bonds to move moderately lower in the short-term, but do not expect
any major downside until the final quarter of this year (by that time most
commodity prices should be trending higher).

Oil:
The bottom is most likely 'in' for the oil price, but we do not anticipate
much upside from its current level until the fourth quarter.

The Currencies:
As the days go by we are becoming progressively more confident that
July-05 gave us at least an intermediate-term peak for the Dollar Index. A
weekly close below 116.58 in the September contract (last week's intra-day
low) would further increase our confidence. We expect that the SF and the
euro will continue to lead the charge in this evolving Dollar bear market,
at least in the short-term. The A$ has, thus far, answered the challenge
and held support at around the $0.50 level.

Gold and Gold Stocks:
The current action is frustrating and there is no technical evidence that
the correction is about to end. However, the big picture is unchanged.
With the Dollar likely to accelerate lower in the months ahead
gold-related investments are set to provide excellent returns. In the mean
time it is just a matter of being patient and filtering out the noise that
acts to distort the underlying bullish trend.

One recent source of noise in the gold market has been the threat of a
miner's strike in SA (whether or not the miners will strike at mines owned
by Harmony, Gold Fields and Durban Deep will be known later today). The
strike threat has certainly caused major weakness in the stock price of
DRD, with the potential negative impact of a strike being underscored by
DRD chairman Mark Wellesley-Wood when he stated that a 3-4 day shutdown at
DRD's mines would put the company out of business. If the company does go
under it won't be because of the strike, it will be the result of a long
line of management blunders that have left the company in an extremely
weak financial position. The strike will just be the proverbial straw that
broke the camel's back. We've noted several times in the past that the
high-risk nature of DRD/DROOY made it unsuitable for a sizeable
investment, but that it could be a reasonable small-sized speculation
during those times when a gold rally appeared to be imminent. Hopefully,
this highly-leveraged company that has been around for so long will
survive this latest challenge to its existence.

Closing Comment:
As far as our big picture views are concerned, the stock, gold and
currency markets are moving in the right direction, albeit very slowly.

Alert #42, Jul-27 2001
Shortly before the close of US trading on Thursday the management of JDS
Uniphase announced that they had achieved a feat that had previously
seemed impossible - they had managed to exceed the enormous loss reported
by Nortel last month. JDSU reported a loss of 'only' $7.9B for the latest
quarter, versus Nortel's $19.4B quarterly loss, but said that its
full-year loss was $50.6B on revenue of $3.3B (including the write-down
of $38.7B in goodwill associated with acquisitions). This amounts to a
loss of $46.30 per share for a company with a stock price of around $9.
JDSU management said they didn't see any signs of a reversal in the
industry's downward trend. Note that these are the same people who didn't
see any signs of a reversal in the industry's upward trend until January
this year, more than 6 months after the peak. They were wrong at the top
and now they are going to be wrong at the bottom. The market has taken the
news in stride.

The popular explanation in the mainstream press for the recent slide in
the gold price is that the probability of a strike by South African gold
miners has been reduced. This 'reasoning' is completely absurd,
particularly since the gold price never rose in response to the threatened
strike in the first place (nor should it since a temporary disruption to
new mine supply is meaningless to the gold price). We don't know why the
gold price has eased over the past couple of days and really don't feel
the need to come up with an explanation for every $2-$3 fluctuation.

The XAU fell quite sharply on Thursday and needs to hold above its
medium-term up-trend (currently at about 52).

The Dollar Index is oversold which means that the Dollar is likely to
respond well to any positive surprise in the preliminary Q2 GDP Report to
be issued on Friday morning prior to the start of US trading. The figures
in these reports are 'massaged' by government statisticians so they have a
tendency to show things as being better than they really are. The
consensus expectation is for real GDP growth of 0.9%. Anything over 1%
would probably give the Dollar a temporary boost. The price deflator (the
measure of inflation used to convert nominal GDP into real GDP) is
expected to be 2.4% (it is ridiculous to think of the inflation rate as
being 2.4% when the money supply is growing at more than 10%, but that's
the way the system works).

As all this choppy back-and-forth action continues in the various markets
it is important to maintain our focus on the big picture.

Alert #41, Jul-24 2001
Most of our readers would be aware that Japan's Nikkei225 Index hit a new
closing low for the year yesterday. It was, in fact, the lowest daily
close for that index since 1985. So, what does this tell us?

At this stage, not a lot. The Nikkei gave a 'bull' signal in April when it
broke above its 12-month downtrend. It has now retraced all the gains made
during the rally that followed its mid-March bottom. This is not
uncommon - markets will often retrace the entire first leg of a rally
before a more substantial advance gets underway. We'll discuss the Nikkei
and the propensity for markets to 'retrace' during this week's Interim
Update. In the mean time, the important level to watch on the Nikkei is
the March-15 intra-day low of 11433 - if this is a simple 'retracing of
gains' prior to a more substantial up-move then the Nikkei should not
close below 11433. The Japanese market has been leading the US market over
the past several months so an upward reversal in the Nikkei is likely to
precede an upward reversal in both the S&P500 and NASDAQ Composite.

As far as the US stock market is concerned, if the selling continues into
mid-week then an important bottom would be possible at that time. However,
since a) there is no definitive evidence that the Nikkei has bottomed (it
did, however, close up by 274 points today after being 50 points down
earlier in the day), b) the US market is not oversold, and c) the
sentiment picture is mixed, it seems more likely that a rebound will occur
during the coming 2-3 days and that this rebound will be followed by
another decline into next week.

One thing to look out for over the next 2 weeks (a potential 'spanner in
the works') would be another 'surprise' Fed rate cut. We previously
speculated that the May-15 rate cut would be this year's final cut unless
the stock market's situation became precarious. Greenspan may well
perceive the market's current situation as being precarious, and since the
Fed would be unlikely to move during the fortnight prior to the Aug-21
FOMC Meeting (doing so would give the appearance of outright panic), this
week and next week will provide the last opportunity for a surprise.

In the currency market the battle continues. Dollar bulls are fighting to
preserve the Dollar Index's medium-term up-trend at around the 117 level.
With the European currencies looking strong after having made important
upside breakouts last week and the Yen thus far resisting the downward
pull of the Japanese stock market, the Dollar's medium-term up-trend
should soon give way.

Two of our trading positions - DROOY and CDE - were stopped-out yesterday.
Both were high-risk speculations that may still perform well if gold and
silver prices soon begin to rally, but we are unlikely to re-purchase
either stock (we already gave DROOY some extra leeway). The more
financially-solid gold stocks are holding up well.

In the TSI Portfolio we presently hold Lihir Gold (LHG) August $0.70 call
options and Normandy (NDY) August $1.10 call options purchased in April
and May respectively. We have just sold the Lihir $0.70 calls for 21c
(realising a profit of 250%) and purchased the $1 calls for 2.5c, thus
maintaining exposure to any significant upside over the next month whilst
locking-in a profit. If the opportunity presents itself we will do a
similar switch with the Normandy options (eg, by replacing the $1.10 calls
with $1.25 calls).

Alert #40, Jul-13 2001
Thursday was another of those strange days when the different markets made
some big moves that appeared to be at odds with each other. In particular,
our forecast stock market rebound moved into high gear, but bonds were
also strong. Bonds may have finally received some support as a result of
the financial crisis that is engulfing South America, although it seemed
to us that bonds received the biggest boost from the much
higher-than-expected increase in jobless claims reported on Thursday
morning.

The stock market rebound that began on Wednesday morning could extend
through to the July options expiration next Friday (July-20). However, the
best opportunity for another 'long side' speculation will be during the
pullback that follows this rebound.

With the European currencies being very close to breaking out from their
respective downtrends, a bounce in the Dollar on Thursday was quite
natural. Decisive breaks in the downtrends shown on the charts included in
yesterday's Interim Update are needed to confirm our view that a major
Dollar decline has commenced. The Dollar is firm in Asian trading at the
time of writing, so a breakout in the euro and the SF is probably going to
have to wait until next week.

The prices of 'the grains' are bounding ahead. It has been our expectation
that weakness in energy would be offset by strength in the grains, some of
the soft commodities, gold and silver. Gold and silver should begin to
move soon, but a definitive break in the US$ is needed for any rally in
gold to be sustainable. We'll review the outlook for commodity prices in
the next WMU. Any weakness in the high-quality gold stocks (Harmony is our
favourite) should be used to add to positions - the risk/reward is
excellent.

Alert #39, Jul-11 2001
Stocks:
In the latest WMU we suggested that a rebound would probably occur after
an attempt to press the downside early in the week. With the equity
put/call ratio hitting the unusually-high level of 0.92 on Tuesday, there
is a reasonable chance that such a rebound will get underway on Wednesday
(particularly if the market sells off again on Wednesday morning). The
major indices will, however, probably drop below this week's lows during
the coming few weeks before we see a sustainable rally. One sign that the
US stock market correction has further to go is the continuing weakness in
the Japanese stock market. The Nikkei, which has been leading the US
market for the past several months (we plan to review this relationship in
tomorrow's Interim Update), is presently involved in what looks to be a
full-blown re-test of its March lows.

The Dollar:
The evidence is mounting that last Thursday gave us the correction lows
for the euro and the SF and that Friday was an important reversal in the
European currencies. The euro and the SF will break-out from their 6-month
downtrends if they can gain another 1-2%. We'll discuss the Dollar in some
detail in tomorrow's Interim Update from both a fundamental and technical
perspective.

Gold and Gold Stocks:
The BOE will be auctioning another 20 tonnes of its gold on Wednesday
morning. Although the amount of gold involved in these auctions is
insignificant, the gold price has tended to drift lower in the lead-up to
the auctions as the market finds a way to ensure that Britain's gold
reserves are dumped at the lowest possible price. The results of the
auction can also exert a psychological influence on the market because
they are publicised as being an indication of the demand for physical gold
(in reality they are no such thing, since only a select few 'players' are
allowed to bid at the auctions). We consider these auctions to be
irrelevant beyond the very short-term (the 2-3 days before and after the
auction).

The XAU has now out-performed the gold price on 3 of the past 5 trading
days, so we may be seeing the first signs of an upward reversal in the
gold market. To date, the intra-day bottom for the XAU during its current
correction was reached on Jul-02. At its Jul-02 intra-day low of 51.30 the
XAU had retraced 61.7% of its gains from the Nov-17 intra-day low (the
beginning of the bull market in gold stocks) to the May-22 intra-day high.
This is 'spookily' close to the 61.8% Fibonacci retracement that many
technicians love.

The Commitments of Traders' Report released on Monday for the previous
week is bullish for gold and the SF. We'll explain why in tomorrow's
Update.

Quick comments on gold, silver, the US$ and stocks (Jul-06, 2001)
The Dollar was very strong on Thursday, with the euro and the SF being
particularly hard-hit. As mentioned in last week's WMU, a drop below the
Jun-11 and Jun-28 lows (the picture-perfect double-bottom) in the euro and
the SF was most likely necessary before a sustainable rally could commence.
These lows were taken out decisively on Thursday. In order for our thesis to
remain in tact, the euro and the SF (basis the September contracts) must not
close below their October 2000 continuous-contract lows (82.60 and 54.88
respectively) over the next 3 trading sessions.

On Thursday, August gold spiked below the intra-day low of 266 reached on
May-30 and Jun-05. Furthermore, silver is approaching its March 2001
continuous-contract low of 419.50 (Thursday's low was 420.00). As noted in
the latest WMU, there is a reasonable chance that silver will spike below
its March 2001 nadir before a bull market commences.

With the euro and the SF delicately poised above their October 2000 lows,
with gold having achieved all reasonable downside objectives, with silver
poised to make a new bear market low, with the XAU positioned right on its
up-trend line and with gold stocks showing some signs of stabilising, the
next few days offer a prime opportunity for reversals (from DOWN to UP for
gold and silver and from UP to DOWN for the Dollar). Further spikes in the
current directions could occur before those reversals take place.

In last week's WMU we mentioned that a close above 1250 in the September
S&P500 would be needed this week to convince us that the correction lows
were in place. This is certainly not going to happen. It now appears likely
that the correction is going to continue for a few more weeks before we see
anything sustainable on the upside. If we don't get stopped-out of our QQQ
positions at break-even on Friday morning, we will look to take profits on
these positions during a probable rebound next week.

Alert #38, Jun-27 2001
STOCKS:

The stock market is, at this stage, absorbing the onslaught of bad news
quite well. On Tuesday we had a 'surprise' earnings warning from Merrill
Lynch (although how anyone could be surprised that a
stockbroking/investment-banking company is having a tough time in the
current environment is beyond us), the pre-announcement of a huge
revenue/earnings miss from communications-chip company Applied Micro (its
Q1 revenue is going to be almost 50% lower than previously estimated), and
Goldman Sachs reducing its revenue/earnings estimates for 38 tech
companies. However, the trading action over the past several days has not
yet validated (or invalidated, for that matter) our view that the market's
correction lows are in place (we consider 'the market' to be the S&P500).
A spike to new lows (for this correction) over the next week can therefore
not be ruled out.

As usual, the Fed's monetary policy announcement scheduled for Wednesday
is drawing a massive amount of attention in the financial press. However,
our view is that it will make very little difference to the stock market
whether the Fed cuts by 25bp or 50bp, or even if it does something
surprising and leaves rates unchanged. The Fed's announcement will no
doubt result in some large swings in the ensuing hours and days, but the
market will most likely arrive at the same place a week from now
regardless of what they do (it will just get there via a different path).
There is no reason to expect much in the way of good news on the earnings
or economic front over the next few months, but the key to the stock
market's performance will be the willingness of investors to discount the
recovery that will begin during the final months of this year.

THE DOLLAR:

The Dollar moved lower over the first 2 days of this week, so the
short-sale opportunity mentioned in the latest WMU did not become
available. A 50bp cut would be bearish for the Dollar and could lead to an
acceleration to the downside. From a technical perspective the Dollar
Index remains in no-man's land, with a re-test of the recent highs not yet
out of the question. A daily close below 117.75  (basis September) would
provide some confirmation that a down-trend has commenced.

GOLD AND GOLD STOCKS

The takeover of HM by ABX has complicated matters because it is
suppressing the XAU (ABX makes up a large part of the XAU and, as is
typically the case, the stock of the acquirer has come under pressure). It
is therefore difficult to draw any conclusions regarding the bounce in the
gold price over the first 2 days of this week. At this stage it looks like
gold and gold stocks are still in correction-mode and, therefore, there is
a chance that the gold price will drop back into the 260s over the next
week before a sustainable advance gets underway. However, we are very
confident that gold is in a bull market and, as such, the pullbacks
represent buying opportunities. If the Fed does happen to cut rates by
50bp on Wednesday things could quickly get interesting in the gold market
since the Fed Funds Rate would then be below the CPI growth rate for the
first time in around 10 years (real interest rates would be negative, even
using the heavily-manipulated CPI as the inflation yardstick) .

Here are our thoughts on the ABX/HM merger:
1. HM is now trading where it was trading at the peak of the May gold
rally. Also, Tuesday's bounce in the gold price would probably have moved
HM up to near its current price even in the absence of the takeover offer.
In other words, the offer price represents almost no premium. If the gold
price now moves above $300, HM shares will most likely trade lower than
they would have done in the absence of the takeover offer since they will
now trade in line with the ABX price.
2. The merger may lead to more forward-selling of gold as Barrick expands
its "Premium Gold Sales Program" (to be re-named the "Discount Gold Sales
Program" after the next gold rally) to account for the inclusion of HM's
assets/production. We doubt that this will have a material effect on the
gold price.
3. The ABX/HM merger will encourage other large mergers/takeovers in the
gold mining industry as the major players try to get a bigger share of the
investment pie.
4. HM shares should be sold immediately with proceeds funneled into HGMCY.

Alert #37, Jun-20 2001
For the past few weeks we've noted that the most likely time for the
current stock market correction to end was during the days leading up to
the Jun-27 FOMC Meeting, that is, right about now. Negativity is presently
almost palpable, so we have an ideal sentiment platform from which a rally
could be launched. In fact, by one particular measure the current level of
despondency has only been exceeded twice during the past 30 years - right
at the bottom of the 1974 bear market and in the aftermath of the 1987
stock market crash. More on this in tomorrow's Interim Update.

Our forecast remains unchanged - this week will most likely give us the
low for this correction. Whether we spike down first to wash-out the few
remaining bulls or begin climbing immediately is unknowable.

In the latest WMU we suggested buying the QQQ below 41.50 and setting a
tight sell-stop at 39. This strategy remains valid (the QQQ was available
below 41.50 on both Monday and Tuesday). For aggressive traders
experienced in options trading, we also suggested buying some low-cost QQQ
call options (the September $55 calls, which traders should be able to
purchase for less the $0.70, were specifically mentioned).

The Dollar rebounded over the first 2 days of this week and Wednesday's
action should tell us whether we are going to see a re-test of the recent
highs or if the Dollar is going to provide us with further evidence that
it has already peaked. We'll know more by the time we write tomorrow's
Interim Update.

Gold remains in correction mode and, as noted in last week's WMU, more
time will probably be spent in the 265-280 range before a sustainable
rally gets underway.

Alert #36, Jun-15 2001
After explaining how the Dollar and the stock market were moving inversely
to each other in yesterday's IU, both the Dollar and the stock market
plunged on Thursday. We could be seeing a similar situation to
early-April, when the Dollar peaked and turned lower 2 days before the
stock market bottomed and turned higher. Anyway, here's a quick update
following Thursday's potentially significant trading action.

The Dollar:

We noted yesterday that a daily close below 118.83 in the September Dollar
Index would provide a preliminary indication that the peak is behind us.
The Dollar closed well below this level on Thursday, so we now have some
technical evidence that the Dollar has peaked. Unless the Dollar rallies
sharply today we will also have some confirmation of a Dollar top (and a
euro bottom) on the weekly chart.

Gold and Gold Stocks:

By closing above last Friday's intra-day high the gold price has provided
some evidence that the correction low is in place. The move up in the gold
price was not confirmed by the gold stocks, which may indicate that gold
will continue to consolidate for another 1-2 weeks before beginning a
major rally. Gold stocks have been moving with the overall stock market
since early-April, so the general stock market decline could also be
responsible for yesterday's muted action in the gold stocks. Whether gold
begins a rally immediately or consolidates for another 2 weeks before
rallying, our work suggests that gold and gold stocks will be much higher
in 2 months time. It is worth noting that yesterday's action in silver
also provided some confirmation that a bottom is in place.

The Stock Market

Sentiment indicators strongly suggest that a bottom is imminent. Although
we have been anticipating that this correction would extend into the
second half of next week, Thursday's trading and a revenue warning issued
by JDSU after Thursday's close increase the chances of completing the
correction earlier than expected. We are not sure what effect today's
options and futures expiration is having on the market and will wait to
see how the market trades during the first half of next week before making
any specific recommendations.

Alert #35, May-25 2001
Gold Market Update:

On Thursday, Russian President Putin was reported as saying that he was
thinking about selling some of Russia's gold reserves in order to help
flood-victims in Siberia. This news was used as the basis for a bear raid
on the gold price, knocking the June contract down to a low of 276.

Thursday's news out of Russia was an obvious attempt to manipulate the
gold price lower. This is clear because Russia has huge reserves of US
Dollars courtesy of the oil bull market of the past 2 years, so why would
they consider selling gold to raise US Dollars when they already have such
a large supply of Dollars?

As we've previously noted, the news of the day is generally
inconsequential and trends are almost never altered by news. How markets
react to news often does, however, tell us something about the underlying
trend. In a bull market bad news is absorbed and the market then marches
higher. In a bear market good news is ignored and the market continues
lower. Unfortunately, Thursday's gold market action tells us very little
because the previous breakout level around 275 was successfully tested, as
we noted it might be in recent commentary even in the absence of any
negative news. So, yesterday's drop does nothing to negate the bullish
case. However, the fact that the bears were able to use this news to
quickly drop the price by $10 is of some concern.

If our view is correct that gold has commenced a bull market then the gold
market is going to have to absorb a regular stream of negative news
concocted by those with large short positions. This is the first test. How
the gold price behaves over the next few days will tell us a lot.

Whether or not you believe that the gold price is manipulated by
governments and bullion banks (we do), the key to the gold price is the
US$. When confidence in the US$ wanes, the investment demand for gold will
rise. Due to the limited supply of physical gold, when the investment
demand for gold is rising no amount of manipulation will be successful in
preventing the gold price from rising. More on this topic in the next
Weekly Update.
 

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