LETTERS TO THE EDITOR — Advice on gold forecasting, hedging

In his letter to the editor (T.N.M., June 22/92), Egizio Bianchini agrees with what I suggest: “Hold while the market is rising and sell when the market is falling.”

He says further that price forecasting is difficult and I agree, but he is confused over what I said, which is to follow trends; producers should hold in an uptrend and sell in a downtrend. Bianchini seems to have difficulty in telling whether the market price trend is up or down.

For the purpose of trend forecasting for hedging, I use a time period of three months to a year. By plotting the weekly high, low and close, one can see the trend, and check what one sees by drawing trendlines. If the analyst cannot see the trend on a chart, there are several mathematical ways to calculate the direction of trend. Gold prices have been in a serious long-term downtrend since December, 1987, when prices were over US$475 per oz. The downtrend may have begun during the summer of 1980. Currently, the intermediate trend is up and has been since May, 1992. Market price trend analysis is a tool for selling and buying gold. Bianchini indicates that there are several financial instruments that can be used to reduce risk in the mining industry. They are correct. I strongly recommend that miners know what is the market trend, and take corrective action to reduce risk and make profits.

Herbert Drechsler

President

HDD Resource Consultants

Vancouver