Gold Stock Bull

The HUI technicals are looking beautiful on all fronts and giving a screaming buy signal. We were burned the last time the technical signal was so clearly bullish, as it was followed by quick 20% drop that led to the recent correction. Whether you believe it was blantant manipulation or not, we find ourselves in similar position today and many are questioning whether we will see a repeat of the selloff in early September. Weak hands were devasted and shaken out of the market with the last correction, but the faith of the true goldbugs wasn’t shaken. You begin to build a tolerance to these violent corrections after a while and realize it is part of the game. As long as the fundamental reasons for owning gold and silver investments remain, the bull market will continue and those that hold their positions will realize impressive gains. As more and more investors use the corrections as buying opportunities instead of fearing the end of the gold bull, the corrections will become shorter and less severe. We can’t read the future, but we are betting the recent rebound in gold stocks has injected a bit of confidence in investors and that we are on the verge of the massive wave III upleg that will push gold beyond $1,000 and silver to $20.

We anticipated that the gold and silver markets would not make any major moves until after the elections, but it seems that the pressure may have been too much and the floodgates may have just started to open. The HUI has rallied over 30 points (+10%) in the last few weeks.

How Will the Gold Market React to the Democrats Gaining Control of the House and/or Senate?

This has been a hot topic lately. The Republican party has historically stood up for big business and has promoted fiscal responsibility, smaller government and an anti-internventionist foreign policy. Well, they are still in bed with big business, but are no longer the party of fiscal responsibility or smaller government. When it comes to the issues that will have the most impact on gold prices, we don’t see much difference in the two parties. Both parties seem intent on imperial (mis)adventures, foreign intervention, bigger and more powerful government and a willingness to run the printing press overtime, causing inflation and increasing the national debt. These policies will only serve to weaken the U.S. dollar and strengthen the price of gold and silver. Wars cost money and lots of it. More printing, more debt. Does it really matter to the price of gold which party controls Congress? We don’t think so.

Technicals Confirm Bullish Signal

A bullish centerline crossover occurs when MACD moves above the zero line and into positive territory. This is a clear indication that momentum has changed from negative to positive, or from bearish to bullish. After a positive divergence and bullish moving average crossover, the centerline crossover can act as a confirmation signal. The HUI realized this crossover recently and hasn’t looked back. The RSI also turned bullish, but has not yet reached overbought status. Even more impressive is that the recent HUI uptick broke through not only the 50-day moving average, but the 100-day and 200-day moving averages as well.

At Gold Stock Bull, we still see gold reaching $1,000+ and expect it to happen sooner than most analysts expect. Maybe not by the end of the year, but we expect gold to be above $700 and silver above $14 before the Holiday season rolls around.

Silver looks poised for a huge breakout, having just broken resistance. As mentioned in a previous post, we like Silver Wheaton warrants as a leveraged low-risk play on silver. From our perspective, now is a great time to take a position in silver. If the warrants are a bit too risky for your taste, you might prefer gaining exposure to silver via the recently launched iShares Silver Trust ETF (SLV). Take a look at the silver chart below. Again, we have beautiful bullish technical set up and clear buy signal.

The coming weeks should be very interesting for the gold and silver markets. We will be looking to add to our positions in SLV, SLW, YGC.TO and TLG.V.

In other news, Bema was up 10% today on reports that the company will be acquired by Kinross for $3.1B. We might have expected a larger gain in Bema stock, considering that the deal represents a 22% premium to Bema’s Friday close on the Toronto Stock Exchange. This deal makes strategic sense for both parties and we expect significant synergies for the new company. As the gold market heats up again, more acquisitions will surely be announced. While there are several viable takeover candidates, we wrote a piece a few months back on 4 Mining Takeover Targets. One of the companies mentioned in that article, Metalline Mining, recently had its share price double from $2 to $4 in a matter of weeks. We think the stock still has room to run and could see $6 in the coming months. We will look to buy on any dips back towards $3. As of November 6, Metalline will be listed on the Amex under the ticker symbol (MMG). For more information on Metalline, check out this blog article.

Good luck and happy investing!