Below is an extract from Enrico Orlandini‘s latest dispatch from Dow Theory Analysis S.A.C.“:

“… Now with respect to gold, I must admit that I am extremely bullish the yellow metal at this point in time. More so than I have been in a long, long time and I do not think my enthusiasm is misplaced. I have been following gold for nine years and buying gold since early 2002. I do so, not out of any emotional attachment, but rather because my technical analysis tells me that gold is going to rally up to US $3,000 by 2012 or 2013. I have expounded that belief for six years, as most of you are painfully aware. The funny thing is that as gold goes higher, the harder it is to convince anyone that it should be bought. Everyone loves to call a top to the bull market in gold and yet the top is not even close to materializing.

Until March of this year, the ride had been relatively smooth as we rallied from the 2001 low of US $252.50 to the March 2008 high of US $1,033.90. You can see the move up in gold’s historical chart posted above. The biggest correction was a measly 25% and that made investors greedy and complacent, a deadly combination when placing money in any market. In March the markets took it upon itself to humble investors and remind them just who was boss.

Then comes the inevitable correction. Gold fell from the 1,033.90 high, all the way down to the 681.00 low posted just last month, and that is a 45% retracement of the entire bull market. A significant correction to say the least! Immediately after the 681.00 bottom was posted the gold price moved back up over 700.00 and began to build a base, most of which has occurred close to the 38.1% retracement level at 735.80. As you can see below in the daily chart, a range has been established that reaches from the 720.20 support on up to the 760.60 resistance.

You can also see that price is being compressed into a tighter and tighter trading range and in a bull market the odds favor an upside breakout.

Currently the December gold futures contract is moving toward the top of the range trading up 13.70 at 749.70. It is rallying in spite of a good rally in the dollar and bond market, and in spite of the fact that almost all other commodities are down in negative territory. I am looking for a move and a close above the important 772.70 level.

Once that happens then I think gold will move back up to tackle the old all-time high at 850.00 yet again. For the first time in a long time the P & F chart for gold has a bullish price target of 825 and although it may not seem like much, it is a step in the right direction.

In conclusion,

we are suffering from significant deflationary pressures where everything loses value. When that happens, folks tend to search out a real store of value and that would be gold. The yellow metal is the world’s oldest store of value. Other countries have a long history of this and Americans will follow suit. I have no doubt that the US government will try to outlaw gold at some point in time, just like they did back in 1932. They will also implement other measures in an effort to pacify Americans, but sooner or later they’ll catch on and that is when the real trouble begins. Social unrest and civil disobedience will come to the surface as people look for their rights, they so carelessly gave up. A struggle for power will ensue.