We were a bit early to say that the Gold Selloff Would Not Last. After pausing at 340, the HUI continued all the way down to support at 300. But 300 proved to be very solid support and the Gold Bugs Index bounced off this mark and charged all the way to a new record at 387. That is a gain of nearly 30% in just a month! More importantly, the HUI has broken through resistance at 370, which has turned back the HUI on five separate attempts over what has been a lackluster year of consolidation in the gold market.
We disagree with other pundits who are cautioning that gold will pull back from these levels. While we may see a short bout of consolidation to form the handle of this classic cup and handle set up, we don’t anticipate any significant pullback and believe that the 360-370 level that has acted as resistance for so long, will now become support.
This latest surge has the hallmarks of being more than another head fake and should see the HUI charge above 400 in the coming days. Not only has the HUI finally broken and held above 370, but this has been accompanied by the dollar breaking down through key support at 80, oil making new highs above $80 and a significant increase in Middle East tension. Throw in the fact that The Bank of Spain, which has recently been the biggest seller of gold, has just announced that it is finished selling any more of its gold, and you have a convergence of forces that are aligning and will finally see the gold bull kick into action again.
The momentum indicators in the chart below show that gold stocks still have plenty of room to run before being overbought. And if this is indeed the resumption of the gold stock bull, we will see a return to the impressive uplegs that characterized the first four years of this bull market. More specifically, we are talking about uplegs of 50% or more, followed by retreats in the 20-30% range. While the last year of consolidation has erased these memories from the minds of many investors, we expect this next wave to be a potent reminder of how powerful this bull can be when it gets kicking. Thus far, the HUI is up 30% from its bottom at 300, leaving us with a target somewhere above 450 for the HUI and $850 for gold before any serious correction is due. From a technical standpoint, we have a large enough base (over a year of consolidation) for such an impressive move to take place.
A good strategy for most gold investors and certainly for those new to this sector is to pick up Market Vector Gold Miners ETF (GDX). The Gold Miners ETF seeks to replicate as closely as possible, before fees and expenses, the performance of gold- and silver-mining companies as represented in the Amex Gold Miners Index. The Amex Gold Miners Index includes common stocks and ADRs of selected companies involved in mining for gold or silver ore. The Index consists of 37 equities, representing a diversified blend of small-, mid- and large-capitalization mining companies.
But for those investors with a higher risk tolerance, picking the individual miners with experienced management, promising properties and a solid business model could lead to much higher returns. A few of our favorite gold and silver mining companies are listed below. We continue to provide our research and stock picks free of charge. If the information on this site has helped your investing, please consider leaving a donation to help cover our expenses and keep access to this information free. Any amount is greatly appreciated.
Yamana Gold (AUY) Our Analysis of AUY
Seabridge Gold (SA) Our Analysis of SA
Silver Wheaton (SLW) Our Analysis of SLW
Tagish Lake (TLG.V) Our Analysis of TLG
Northern Orion (NTO) Our Analysis of NTO
Metalline Mining (MMG) Our Analysis of MMG
Newcrest Mining (NCMGY.PK) Our Analysis of NCMGY
Golden Star Resources (GSS) Our Analysis of GSS
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We own positions in these stocks and believe they will outperform their peers by a significant margin. Of course, you should perform your own due diligence and are solely responsible for your investment decisions. These are simply the companies that we favor most. Cheers and happy investing!
Good analysis! Could you do one more? Find a gold or silver mining company that only mines in the US. This company will have its costs in US dollars, which of course is dropping like a rock and will continue to do so with the amount of US currency being printed. The combination of soaring gold/silver prices with plummeting costs would mean a great opportunity.
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With well-written and researched articles, Gold Stock Bull has become one of my “must read” sites. I’ve made nice profits from acting on your observations from previous articles and I’m more than happy to make small periodic donations to keep the site online. Ron Paul rules!
I agree with you that gold stocks are set up for a nice 30%+ move after over a year of consolidation.
We just saw one of the great market “poker games” of our generation. One that unfortunately will impact the next generation.
While Bernanke inherited Greenspans “hand” the last 3 cards he received were all dealt face up and they were “inflation” cards.
The market “called” and Bernanke “blinked.”
I wrote this piece about why I think this is going to be so important:
http://goldsilverstockcharts.wordpress.com/2007/09/30/ben-bernanke-blinks-and-the-market-calls/
Bernanke had a chance to become “his own man.”
He could have become the “Inflation Doctor” and given America it’s “asset bubble” medicine and cured the ills of Greenspan – but, he blinked.
And when he blinked – the market called, and a huge rally in gold, and commodities has ensued.
And it isn’t over. It’s just getting it’s 2nd wind here in my opinion.
The Fed made 3 repo injections totaling nearly $100 Billion Dollars in the month of September alone.
While the market has rallied back near it’s DOW 14,000 high, the only thing broad market bulls are accomplishing is rearranging the deck chairs on the Titanic.
What they failed to notice is that the life boats have already launched!
Michael Cerulean
http://goldsilverstockcharts.wordpress.com/