Dow Jones 10892.90 +21.47 7:43 am PST, November 23, 2005  NASDAQ 2258.78 +5.22 For info, visit access.smallcapnetwork.com S & P 500 1262.78 +1.55 Change your subscription status here Russell 2000 682.00 -0.55 VOLUME 05: ISSUE 88  Feature: Gold on Fire - Going Higher? Until recently, most investors couldn't tell you the gold price to within $50. Now, just about everyone knows it's flirting with $500 an ounce. Is a pullback of this nifty move coming? Maybe. In the Q3 2005, there are a few factors investors should know about what's driving the current gold price: 56% rise in investment demand in third quarter of 2005.     Total gold demand up 7% in tonnes and 18% in dollar terms.  Seventh consecutive quarter of positive growth in total tonnage demand, and tenth consecutive quarter of double-digit growth in total value.  Year-on-year growth for gold jewellery in the first three quarters of 2005 up 12% in tonnage terms and 20% in dollar terms. As well, the World Gold Council states:  "Investment in Exchange Traded Funds (ETFs) and similar products amounted to 38 tonnes (compared to a net decline of 2 tonnes in Q3 2004).  Indications suggest that institutional investment using means other than ETFs and similar products was similarly positive". So, instead of being the province of chicken-little gold bugs, the interest in gold has gone mainstream. I checked in with Louis Paquette, Editor of the Emerging Growth Stocks newsletter and a long time gold observer for his insights. Paquette notes that the gold price broke the October high last week and is now swirling around 18-year highs. "The Gold Bull Market has entered a new phase in recent months, decoupling from the US$ and rising in all (fiat) currencies now. While demand for jewellery remains robust, Investment demand is rising even faster, up 56 percent in the 3rd quarter. Numerous international Central Banks are expressing interest in adding to their gold reserves. While there should be some technical resistance at $500--robust investment demand combined with concerns of higher inflation and the state of the US financial system should propel the price to and above $500 in the near term, much higher in the months and years to come". As the gold price approaches $500, demand has, and will likely be muted somewhat, but the general consensus seems to be for higher prices in the months and years ahead. We would agree, but with a couple of technical caveats. One can't have a serious discussion of gold without a look at the Amex Gold Bug Index (AMEX: ^HUI). This index measures the performance of a basket of gold stocks that have not leveraged their future production. Therefore, these stocks tend to go up and down commensurate with the price of gold.  Bottomline is that while we feel that gold will go much higher in the years to come a pullback is likely in the short-term. The red line and the arrow show gold's inability to break down. It should have, it didn't, catching investors by surprise as it put together a very significant rally. The only real surprise is that the action is no surprise as gold prediction is an inexact science at best. The other fact is that once a price trend locks in, it takes a lot to break it, whether bullish or bearish. It has taken 18 years for the gold price to get to this point, after all. Following our expected pullback--which could move the index to the low 200's-- we believe a strong gold rally will take the HUI to 300 and then to roughly 385 before there is a trend change. The recent failure of gold to breakdown was an extremely significant signal as to the positive trend staying intact and expanding. Obviously there will be blips along the way, but the current technical picture appears compelling. How does one play this? There are several ways. I have to say, while it's a quick and easy way to participate, I am unimpressed with the Streetracks Gold Trust ETF (NYSE: GLD) as it really hasn't performed very well during this phase of gold's incline. That's not to say it won't improve, but so far it's performance has been sluggish, in my opinion. There are of course a myriad of junior gold stocks for die-hard investors to buy as well as physical bullion wafers, coins or bars. Then there are the senior golds such as American Barrick (NYSE: ABX), which is becoming more senior as the company's recent offer for Placer Dome connotes. There will likely be more consolidation in the sector depending on the gold price within both seniors and juniors. Gold production is declining, so there is major impetus to renew and expand reserves. If you can't find them, buy them appears to be the industry mantra. Much like the gold price, we see the price of Barrick pulling back, soon, from the red line on the chart. We would suggest accumulating around the green line, which of course is contingent upon what the gold price does. It the trading pattern we have outlined above materializes, there is a good chance buyers will get a decent entry point for ABX around $26--or ideally just under. If our observations come to pass, a purchase following the pullback should yield good returns over time as the gold price continues to improve. We have all heard over the years that one should have gold exposure in a portfolio.  Apparently so far, that was good advice. That said, the patience and fortitude necessary to stay the course and take the plunge now--especially after a good move--takes a true believer. Timing gold purchases is pretty much a mug's game. The moves are just too swift and compressed to trade it effectively. For once, the pundits' were right: pick your price and own gold for the long-term. Needless to say, the best of Thanksgiving.  Please take a moment for the troops , both at home and abroad. Their bravery and dedication is beyond inspiring.  See you Monday.   We Value Your Feedback Got comments, questions or suggestions? Send 'em on over: Editor@smallcapnetwork.com If you wish to send a written request or inquiry, please send it to our physical address: TGR Group, LLC 4653 Carmel Mtn Rd Suite 308 #402  San Diego, CA 92130 Subscribe Information is power and timely information is profitable. Become informed and profit from SmallCapDigest Profiles and Trading Alerts by becoming a Preferred Member today. There is no cost associated with your email subscription. Add your email address below and make sure to check your email inbox and confirm your opt-in request to start receiving the SmallCapDigest Email Newsletter on a regular basis. To ensure newsletter delivery, you can add any additional email addresses you may have to the SmallCapDigest Member List. 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