Saturday, January 07, 2006



Second Edition

Friday, January 6th, 2006
Chris G. Waltzek



"Goldman Sachs is predicting a medium-term (gold) price of $640."

Friday marked the close of another surprising week for precious metals. On my Tuesday morning audio Podcast, The Gold and Silver Review, I noted that precious metals as well as gold stocks were looking good for the week. By market close on Tuesday, gold and silver re-tested the market top recorded a month earlier. Gold and silver reached highs of $533 and $9.15. After peaking on Thursday morning, gold and silver sold off into the weekend ending the week just beneath $540 and $9.10, respectively:

In the chart above, gold approached the high point then recoiled abruptly on Thursday. From a technical perspective, the market needed to rebound and climb above the previous high and that is exactly what happened. The candle stick patterns are not bearish in the daily chart. If gold fails in the current wave higher, expect a consolidation to develop. Gold closed at the weekly high point:

Silver reacted sharply on Thursday. The market left a few small unfilled gaps that will need to be filled at some point:

Silver was unable to break above the previous peak but appears strong in the weekly chart:

Gold stocks have also been moving sharply higher for several months and were equally strong this week. Following the recent weeks break-out, gold stocks vaulted higher. It was clear before Near Years that the $XAU had broken above resistance and that the market would likely advance further. Although the $XAU is still in a bull market, it left 2 big unfilled gaps in the daily chart. Gaps often lead to trading ranges:

The steep ascent in the weekly $XAU chart is bullish. One can see clearly that gold stocks have been moving in a near vertical trajectory. Although this week ended strong, expect the unfilled gap to lead to selling pressure soon:


Very few analysts called for prices to rebound from the pre-holiday sell-off, with one glaring exception, Jim Sinclair. Mr. Sinclair reiterated his price objective for the commodity du jour:

"gold is going in 2006 to $682 and $750 and the bear market counter trend dollar rally will conclude. Traders need only stick to their trend line discipline. Investors remain in position as I see it.... It does not matter if it happens now or later this year. No one can be absolutely sure of the timing because there is a hidden hand in the market equation called over-the-counter derivatives which supersedes the US Dollar/Gold relationship, the price of oil, the Fed minutes or any other potential motivator."

Gold pundit Jay Taylor's shared his views on precious metals this week:

"If there is a loss of confidence in the dollar or in the global monetary system on a major scale, then we could exceed $600 very easy. How long is this gold bull market going to go? I think we could be in a 10 year bull market-you know it started two or three years ago. So ultimately I think we are going to see gold quoted in 4 digits not three..."

David N. Vaughn included the following gold prediction in his weekly commentary, the Gold Letter, Inc:

"So, what does the year 2006 really have in store for gold? This past year has merely been a "warm-up for 2006," said Dale Doelling, chief market technician at Trends In Commodities.” "The perfect (financial) storm is about to come raining down on us, and the precious metals will be the place to be in the coming year," he said.” “So "hold on to your gold, silver, platinum, palladium and copper --these are the markets that will pay huge rewards and keep you out of harms way in 2006… There is nothing on the horizon for 2006 to suggest that any of these factors are likely to reverse course in the coming year," he said, adding that analysts suggest that the price of gold is "prone to test the next bastion -- that of the $600 price level."

In his latest report, David Uren listed the 2006 Goldman Sachs gold target:

"The gold price is close to 25-year highs, closing at $US532.50 an ounce in New York on Tuesday. Some US traders are talking about prices of $700/oz within the year, while Goldman Sachs is predicting a medium-term price of $640."

Silver is also expected to shine in 2006 according to Sean Rakhimov of Barclays:

"If you needed any further clarification after all the hoopla around the silver ETF, Barclays Global Investors tipped their hand once more by forecasting that Silver may rise 18% from this year."

The next silver forecast will appeal to the silver bug in everyone. This silver price target is longer-term in horizon and should be of great interest to an investor like Warren Buffet, the rumored holder of 129 million ounces of silver:

"The primary source of silver is as a by-product of copper, lead and zinc mining. Those mines dig up 70% of our silver supply. That's fine and dandy except what happens if copper becomes so expensive to mine that mines are unable to dig deeper as needed to reach the more difficult deposits? If copper discoveries are declining as illustrated to the right, that means less silver reserves will be set aside, too. A silver price of say, $150 an ounce..."

Lastly Ed Bugos predicted gold to hit $575-633 by May 2006 in his market forecast for gold and gold stocks, The Weekly Gold Market Outlook:

"January 4th, 2005: This is the most bullish recovery off a 10 percent correction in gold prices that I've seen to date, or at least since 2003... The gold sector has clearly been the right place to be. And since the pieces seem to be falling into place in my outlook, I am maintaining and reaffirming my intermediate (< six months from here) gold price and gold share targets as follows:
US$575-633 between now and May (most near term upside in CAD gold price)
HUI = 350-370 (XAU = 150-160) between now and May (i.e. a 15-20 percent gain from here)
Gold Stocks in the BGI (targets): NEM = US$65-70; GG = US$25; GLG = US$35; EGO = US$6; GFI = US$22-25; HMY = US$18-20; MDG = US$30; IAG = US$10-12; AEM = US$25-30; GOLD (Randgold) = US$20-25."

Paul Walker, the chief executive of London-based research group GFMS Ltd was quoted this week:

"Gold may rise as high as $850 an ounce within 18 months as a weakening dollar boosts the metal's appeal as an alternative investment to U.S. assets."

The golden bull markets "fearless leader" Bill Murphy from GATA quoted John Embry and Adam Fleming's long-term gold price objectives. As surprising as the following forecast may sound, very few analysts that I follow would disagree with the figure:

"Contrary to what almost all the gold pundits and gold mainstream gold world thought a year/two years ago, gold is moving on its own because of this one particular reason. It is not moving because the dollar is weak, inflation, safe-haven stuff, falling stock markets, etc. It is on the move because The Gold Cartel is on its way out. In time all of these other factors will kick in and send gold much higher ... WAY up, to over $2,000 per ounce most likely to between $3,000 and $5,000) per ounce..."

The Big Shot Of The Week Award, goes to James Turk. In a recent radio broadcast, James Turk announced a $600+ outlook for 2006 and a sharply decreasing dollar. Turk wins the Big Shot Award for his bold long-run forecast. He believes we will ultimately reach $8,000 per ounce at the gold bull market peak!

Bottom Line:

Gold and silver shrugged off the major sell-off on Thursday with a startling recovery on Friday. The markets erased most of the losses and remain resilient despite the over-bought technical situation. The trend remains up as long as higher highs are followed by higher lows.
Surprisingly, Goldman Sachs and all of the analysts listed above expect 2006 to bring at least $575-$700 for gold investors. Silver is expected to perform in sterling fashion, increasing by 18% in the next 12 months.
On the long-term time horizon, the price forecasts for gold by the top analysts listed above, range from $2,000 to a very speculative $8,000. The recent break-out in silver should bring prices to at least the 1980's market peak, in the years ahead. When adjusted for inflation that figure approaches the $150, identical to the figure quoted in the article listed above. 2006 is indeed turning out to be a most exciting chapter in the gold and silver bull market.

Thanks for reading.
Chris Waltzek

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