|
Are
you uneasy about gold stocks? After the Federal Reserve raised interest rates
last week, gold fell 19 points. We found out on Friday that as of June 28,
2005 commercial shorts had a massive 165,000 contract net short position
against the metal. After gold dropped some people cried manipulation. Others
just shook their heads at what seemed like another beating for gold bugs.
I know most
people are a little shaken up right now. My advice - Don't be. I'm more
confident and optimistic now about what the future holds for gold stock bulls
than I have ever been before. In fact, over the past few weeks I've been
buying gold stocks hand over fist.
At any moment,
gold stocks are going to turn up and begin another giant bull run. That
statement might sound bold to you. You might find it hard to believe,
especially with the recent drop in gold, but let me explain to you why.
1)
Gold is Going up Now Against All Currencies
Since May, gold
has been rising along with the dollar. We have never seen this before. In
fact gold is now going up against all major currencies. It broke out against
the Euro a month ago and just broke out against the Japanese yen.
This is a change
in the macro trend in gold. For the past few years, the gold bull market has
primarily been driven by a bear market in the dollar. As the dollar has
dropped, institutional investors have sold their dollars and bought gold as a
hedge. Now that currencies all over the world are starting to drop against
the metal, investment demand for gold is going to become international.
Since the May
bottom in gold, the yellow metal has become the world's
best performing currency.
2)
Long-term XAU Chart Spells Breakout
Since their May
bottom, gold stocks have had the largest rally off of a bottom that they have
made during the past three years of this gold bull market. The rally has been
nothing but amazing.
That rally came
to an end when the XAU hit resistance at 95. This 95 level is major
resistance as it is the intersection of the 150-day moving average on the XAU
and the resistance point of the downward trendline
connecting the November and March peaks in the XAU. It also represents a fibonacci 50% retracement level
of the November high and May low.
The 95 level has
held down the XAU for the past three weeks. Once the index closes above it
you will see a key breakout in gold stocks that will take it to the 105-110
area.
3) Gold Stocks Are Outperforming
Gold
Gold stocks tend
to lead the metal. Since 2002, we have seen three major uptrends
in gold stocks. A fourth one is just beginning right now.
Notice the green
price relative to gold (XAU/gold ratio) on the chart above. When this line is
rising it means gold stocks are outperforming the metal. Each of the three
major uptrends in gold stocks began when the stocks
started to outperform gold. For seven months the stocks lagged the metal.
This relationship switched in May.
What is amazing
now though is that gold stocks are growing stronger when compared to the
action in the metal. Even though gold fell down to 421, over the past week,
gold stocks barely fell at all, with the XAU standing firm above 90. In fact on Friday,
when gold fell over 9 points, the XAU managed to close in the green.
One has to ask
oneself, if gold stocks are acting like this when gold drops, what are they
going to do when gold goes up?
I'll tell you...
They are going to explode in value. This is a pure powder keg.
4)
A Breakout for the XAU Appears Imminent
When it comes to
the price action of stocks, one rule is that large moves are preceded by
sharp drops in volatility. When a stock or market trades in a more and more narrow range the forces of supply and demand become
equal. Eventually one side grows stronger than the other and the volatility
rapidly expands causing a large move in the stock or market.
Think of it like
a rubber band. If you take a rubber band and stretch it you usually apply
equal pressure to both sides of the rubber band. If you let one side of the
band go it will quickly snap back to the other side.
The XAU has
reached an extreme low in volatility over the past four weeks. The indicators
that I use to measure volatility are called bollinger
bands. When they narrow it means that volatility has shrunk to an extreme
level.
The last time
this happened was back in March, when the XAU was making an important peak. It
then quickly fell over 10% in three weeks.
Another large
move is about to happen. In fact, judging by the bollinger
bands, it is likely to happen at any moment. This time though, it should be
to the upside because of the strong performance of the gold stocks against
the price of gold. Notice back in March they were actually underperforming.
Now they are outperforming.
The XAU is
knocking on 95. It should bust right on through any day now. You need to be
fully prepared and ready. This is not the time to get nervous or scared about
gold stocks. It is the time to get excited. The fuse is lit.
To find out what
gold stocks Mike Swanson holds and plans on buying subscribe to his free
Weekly Gold Report at http://wallstreetwindow.com/weeklygold.htm.
Mike
Swanson
Editor, Wall
Street Window
Disclaimer: Michael Swanson is the President
of USA Capital, Inc., which provides management, support, and research for institutional
investors, hedge funds, and mutual funds. The ChartWizard is also an employee
of USA, Capital, Inc. Both Swanson and employees and associates of USA
Capital, Inc. may have a position in securities which they mention on WallStreetWindow or any of its services. In such cases,
appropriate disclosure is made. Under no circumstances should the information
received from WallStreetWindow represent a
recommendation to buy, sell, or hold any security. WallStreetWindow
contains the opinions of Swanson and the ChartWizard and is provided for
informational purposes only. Neither Swanson, the
ChartWizard, nor TimingWallstreet, Inc., which owns
WallStreetWindow, provide individual
investment advice and will not advise you personally concerning the nature,
potential, value, or of any particular stock or investment strategy. To the
extent that any of the information contained on WallSteetWindow
may be deemed investment advice, such information is impersonal and not
tailored to the investment needs of any specific person. Past results of WallStreetWindow, the ChartWizard, or Michael Swanson are
not necessarily indicative of future performance.
WallStreetWindow does not
represent the accuracy nor does it warranty the accuracy, completeness or
timeliness of the statements made on its web site or in its email alerts. The
information provided should therefore be used as a basis for continued,
independent research into a security referenced on WallStreetWindow
so that the Subscriber forms his or her own opinion regarding any investment
in a security mentioned by WallStreetWindow. The
Subscriber therefore agrees that he or she alone bears complete
responsibility for their own investment research and decisions. We are not
and do not represent ourselves to be a registered investment adviser or
advisory firm or company. You should consult a qualified financial advisor or
stock broker before making any investment decision and to help you evaluate
any information you may receive from WallStreetWindow.
Consequently, the Subscriber understands and agrees that by using any
of the WallStreetWindow services, either directly
or indirectly, TimingWallStreet, Inc. shall not be
liable to anyone for any loss, injury or damage resulting from the use of or
information attained from WallStreetWindow.
| 
