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In September it was "how low can she go\?"

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In September, investors were looking at the Gold/Silver Index (XAU.X) breaking to new lows and asking the question, "how low will it go?" Today investors pose the question "how high will it fly?" We tried to answer both of these question in our market commentary. PremierMarkets.com actually went as far as to profile several gold/silver stock for investors and traders back in early April. Heck... we even placed Barrick Gold (ABX) in our profiled portfolio. It wasn't exciting or glamorous, but boy it sure has been profitable for those who did.

Gold/Silver Index (XAU.X) - $2 box

I've marked a column of X's (blue A) on the above chart that would have been the vertical count column for the XAU.X back in August of 1999. That column of X's indicated a bullish price objective for the XAU.X to potentially reach $92 = ((7*3)*2)+50. Well, that worked pretty well. So when bearish traders saw the Gold/Silver Index breaking to new lows in September of last year (red 9 at $52) everyone wanted to know how low it could go. We then simply took the sell column from the top (blue B) and went to work. Remember, the principle was the same, but the equation is just slightly different. Instead of multiplying the column of O's by 3, we multiply the downward leg by 2. Thus we calculated $88 - ((12*2)*2) = $40. We thought the XAU.X might see a bearish price objective of $40. In the end, on October 25, 2000, the XAU.X bottomed at $41.61. Off by $0.39 but pretty close. Currently, the bullish price objective (blue C) indicates a level somewhere near the $78 level. Give or take $0.39 cents of course.

Jeff Bailey Senior Market Technician

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