VIP Gold $354.50: The Maginot Line

James E. Sinclair, Jan 9/03

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Last evening we discussed the $354.50 level of gold as The Black Knight
that stood guard at the bridge saying "None shall pass" in order to
communicate what was really happening with gold from a market standpoint.
The bridge in that example is the price of gold at $354.50 and the Black
Knight represents those that would be harmed by a higher gold price and
therefore are doing what they can to prevent a crossing that will soon
occur. The Black Knight fails to prevent King Arthur and his troops from
crossing the bridge but seems as if he really does not know he has already
failed.

Let's look at $354.50 in another way. It can be compared to the Maginot
Line that turned out to be a line drawn in sand. After experiencing
tremendous devastation and huge loss of lives in WWI, the French government
built the Maginot Line to defend their border against Germany. The Maginot
Line was described at that time as "a vast, dynamic, state-of-the-art,
ultra-modern defensive system." Most of its components were underground
where interconnecting tunnels stretched for kilometers, and where, beneath
the earth, thousands of men slept, trained, and watched.

The Maginot Line, or the "Great Wall" of France, was intended to be a place
for soldiers to hide, while it provided the time necessary to mobilize the
troops. The Maginot Line was a powerful line of defense which stretched
from Switzerland to the Ardennes in the North, and from the Alps to the
Mediterranean in the South. The only glitch was that when Germany decided
to invade France, instead of crossing the Maginot Line, they simply went
around it and invaded France through Ardennes forest. France surrendered
rapidly to the German blitzkrieg.

Similarly, the $354.50 line, which is not a resistance point, will be
breached out of the blue, all of a sudden, as if there was in fact no one
to defend or stop the rising price onslaught of the gold monetary
disciplined troops.

Normally at this juncture, I would be cautioning the gold community. It is
clear that the Gold Cartel and Exchange Stabilization Fund would like to
see $354.50 function as did $330, albeit with more staying power. The
Federal Reserve and the White House are expending great efforts to not let
this equity market decline below the present 8700 Dow Level (so as to keep
their instant gratification troops somewhat happy).

There is, however, a rat (or three) in that economic and political
woodpile. The key rat is the weakness of the US Dollar. This is incurable
in the light of the negative US Dollar plans being utilized by both the
Federal Reserve and the White House to maintain the level of the equity
markets and therefore the mood of the public. All of their efforts are in
hopes of igniting economic recovery. It is simply a contradiction of
desires for a strong market to be produced in this environment by means of
dollar-weakening economic techniques.

The second rat is Iraq. Informed opinion states that plans for a war and
war rhetoric have gone on too long. If the US does not launch an attack by
the end of January then the growing support for Iraq in the Middle East,
even by certain NATO nations, is going to strengthen Saddam's position to a
point of a lost opportunity. I have heard this from serious, well-placed
and knowledgeable sources.

The third rat is North Korea which is saying: "If you want to pick on
someone for making atomic weapons, come on, we are ready." Yes, they have
openly challenged the fundamental reasons for the Bush administration's
basis for an invasion of Iraq (remember- no nasty grams to the messenger:
me). When the White House suggested that the North Korean problem could be
solved by diplomacy, North Korea answered saying that they had no interest
in discussions with the US or anyone else for that matter on their renewed
atomic weapons program. I am told that after January is over, if the US has
not invaded Iraq, not only will this resistance and challenge accelerate
but also other less friendly nations to the US will join the chorus of
those who are cozy with Iraq for business reasons.

So, at this time do you really want to be without your gold position, or
even, for that matter, with less of a gold position as long as you are not
over extended? If the gold market weakened somewhat would you really want
to throw your shares or bullion into the market questioning if the thesis
of gold has failed? I really do not think so.

The problem is that trading here is not warranted in my opinion. That is
because the "Bridge" when the gold market gets it into its mind to go over
$400 could do it right from here and tomorrow. There will be no Black
Knight able to keep gold from crossing the bridge. There will be no Maginot
Line in the right place when gold ignites and runs over $400. It is very
close to that gold move, regardless of today's Presidential and Fed
inspired stock market rally.

Therefore, I cannot recommend reductions in positions here. There simply is
too much gunpowder on the ground and the firing officer is standing too
near the fuse with a "Churchill" type cigar ignited and dropping sparks. He
might fire even before the commander yells "Fire" and there goes gold.

You have to understand that the stock market is driven not by the public
today but by money managers of institutional funds. There is no public in
the stock market. If an institutional money manager is not buying in a
rally, that manager will lose his/her job. They can cream you, the
investor, in a bear market long with no lack of job security. However, if
the market rallies and they are either light in stock or in cash they are
out of work. Yes, it is totally amoral but it is a reality.

So, at this time, the insurance character of gold overrides the trading
potential of gold.

I will continue to give you support and resistance points with comment but
at this point I cannot, in good conscience, suggest that against the real
resistance at $357 - $359, you lighten up. I have no need to pump my ego by
making consistently correct market calls. I already know that I am able to
do that in gold and the dollar.

Forgive me if I err by this approach but I must speak clearly and
definitively on what I firmly believe is the best interest of the gold
community. Gold, having completed the Golden Teacup, is on its way. Yes,
there will be drama along the way but, in my opinion, the target price
objective of $400 and $500 is no longer technically questionable save the
for the Prechterian Wavers.

Accompanying Charts (click to view)
http://www.tanrange.com/i/misc/tnx-chair-jan092003-chart1.jpg

http://www.tanrange.com/i/misc/tnx-chair-jan092003-chart2.jpg

http://www.tanrange.com/i/misc/tnx-chair-jan092003-chart3.jpg

http://www.tanrange.com/i/misc/tnx-chair-jan092003-chart4.jpg

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