Gold - Where is it Headed?
We feel there are two major questions in the
gold market, which are as follows:
1. Has gold begun a new leg up in this bull
2. If it has, then when is this party really
going to get started?
1. It looks as to us that gold HAS begun a new
leg up in its bull market. Our reasons for believing this
are two fold:
(A) The gold stocks are
showing relative strength to the metal - Since the
summer the gold stocks have gone up at a faster rate than
the metal. Since this gold bull market began in 2000 whenever
the stocks have outperformed the metal it is has occurred
during a time frame when both were increasing in price. Meanwhile,
when the metal has outperformed the stocks it has occurred
during a time when both the metal and the stocks have been
going down in price.
To show you an example of this we have enclosed
graphs of the Amex Gold Bugs Index (HUI - an index of unhedged
gold stocks) and the Philadelphia Gold Stock Index (XAU -
an index of large cap gold stocks) and their performance against
the price of gold. Note that the bottom portion of the graph
represents their performance against the price of gold.
(B) Weakness in the U.S.
Dollar Index (The U.S. Dollar’s performance against
a basket of currencies) - Gold trades inversely to
the U.S. Dollar meaning that when the U.S. Dollar trades up,
gold usually trades down and vice versa. Recently, we have
seen a crack in the U.S. Dollar index. It had support at 87.
However, 87 was taken out over the past week. The next level
support for the U.S. Dollar is 84 (the lows of earlier this
year), then after that 80. We are looking at virgin territory
for the U.S. Dollar if it falls below 80. The current and
coming weakness in the U.S. Dollar is another reason why gold
should continue to increase in price.
2. There is a major reason that the party in gold stocks has
not begun. This being the “R” word. Resistance.
Gold possesses major resistance in the 420-430 dollar an ounce
range. On no less than 5 occasions in the past 15 years gold
has traded up to the 420-430 range and then failed at this
level. Therefore, the 430 dollar range represents a lot of
resistance and is going to be difficult to breach.
Recently, gold touched the 430 dollar an ounce
level. We expect that gold will pullback over the short term.
However, the good news is once gold does break 430 dollars
it should climb like gang busters. We feel that the 420-430
dollar an ounce level is to gold what the 40-42 dollar a barrel
level was to oil. Oil bounced down off 40 dollars a barrel
numerous times over the past 14 years but once oil broke it
it did so in impressive fashion rising all the way to 55 dollars
Expect a similar move in gold once resistance
It looks to us that gold is well underway for
another bull move. However, there is some serious resistance
in the 420-430 range. The good news is if/when gold takes
out these levels, it should really begin to move explosively
to the upside.
To find out what stocks Dave
Skarica holds and plans on buying subscribe to his free Weekly
Stock Report at http://addictedtoprofits.com/freelist.htm
Disclaimer Note: Dave Skarica is an independent
newsletter writer and may have positions for his clients contrary
to the recommendations in this newsletter, or may act on behalf
of his clients on certain recommendations in this newsletter.
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