| Current Gold Prices
Bode Well For Gold Stock Investing
By Greg Silberman
October 1, 2007 (blog.goldandoilstocks.com)
– Encouraging signs from current Gold prices continue to build
the case for a sustained move in Gold Stocks.
It’s Déjà vu all over again!
For nearly 2-years the 370 level on the HUI proved to be tough
resistance. But then suddenly, last week, it burst above 370
and swiftly moved to re-challenge 400.
As we find ourselves rechallenging theis important level we
need to put aside all semblance of hope, look ourselves
directly in the eye and ask – is this going to be the breakout
in Gold Stocks that we’ve long been waiting for?
The signs are encouraging:
The HUI looks like it has formed a double bottom against the
Dow (red line) and should outperform going forward.
Chart 1 - HUI (top); HUI vs. Dow (red); HUI
vs. Gold (blue)
The heart stopping moment in August when Gold Stocks broke
below major support against Gold Bullion (blue line) seems to
have been a false breakdown. The ratio has recovered and the
test of support looks to have been successful. As discussed in
Gold Stock Investing & Current Gold Prices the out performance
of Gold Stocks against Gold was key ingredient in the last
great Gold Bull market from 2001-2002.
Some more encouraging signs
:
Chart 2 - Gold In Yen (top) ; Gold vs. Industrial Metals
(bottom)
One of the strongest currencies over the last 2 months has
been the Japanese Yen as the much trumpeted Yen carry trade
has been unwinding. It is therefore promising to see Gold
denominated in the Japanese Yen challenging its highs.
At the bottom of chart 2 is the Gold versus Industrial Metals
ratio. This is another important indicator as Gold is a
counter cyclical asset which performs best when economic
conditions are deteriorating (Industrial metals are well
correlated with the economic cycle). In Contrarian Stock
Market Investing Guide part II we showed that there was a
strong correlation between the above ratio and the Japanese
Yen. Therefore, further strength in the ratio implies a
stronger yen which to date has coincided with a stronger Gold
price.
The ongoing credit crunch is slowly playing on investors
nerves and it doesn’t seem to be going away in a hurry. It is
dawning on investors that no amount of interest rate cuts will
cause banks to start lending at their old frenetic pace. In
other words, the problems are systemic and as we have
predicted for over 2 years, Gold will ultimately be the safe
haven of choice.
The HUI is now overbought and a minor correction would
probably be helpful to the technical picture. The necessary
ingredients for a sustained move in Gold Stocks now look to be
in place and we continue to encourage subscribers to average
into positions over the next few weeks.
This article is intended solely for information
purposes. The opinions are those of the author only. Please
conduct further research and consult your financial advisor
before making any investment/trading decision. No
responsibility can be accepted for losses that may result as a
consequence of trading on the basis of this analysis.
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