|
Gold:
$730 / HUI: 400
In
case you missed it, gold and its shares are on the fly in a sense we haven't
witnessed for a long time. Yes, gold is showing its muscles and demands to be
recognized as a true safe haven again, a role which it has fulfilled for
thousands of years. For our readers the sudden surge may not come as a real
surprise since in our Sept 03 dispatch we clearly stated that gold was poised
for take off and gold shares ready for launch:
Excerpt
TGDR Gold/HUI update "Gold - Poised for take off!"
(September 03) - Gold: 673 / HUI: 324
Believe
it or not but gold and its shares are poised for a powerful year end rally
and yes, it's my strong believe that by year end investors will be looking
back at this period wondering how they could have been so stupid not to see
this opportunity.
Last
week we notified our members already that the gold shares sell-off was way
overdone which translated itself in a HUI reading as if gold were trading at
$550! So yes, we argued that the time was right to start accumulating the
gold shares as the saying goes "BUY Low, SELL High!"
Gold
shares selling as if gold were trading at $550 is a huge anomaly indeed and
as we stated in our Gold/HUI update "Bloodbath - part III"
such extremes never persist for a long period of time so something has to
give..Well, it seems the HUI has rocked bottom indeed and is on its way back
to levels one could expect with gold prices of $660+..
END.
Well,
here we are just a mere three weeks later and gold took off indeed and the
gold shares are catching up on gold. The extreme undervaluation of the gold
shares is melting away but the best part is still ahead of us. The fact that
the HUI finally breached its long-term resistance at 360 bodes well for the
gold shares since all previous major HUI rallies were given birth after a long
consolidation period. The HUI data over the last 5 years do speak for itself:
- HUI break-out 2003 at 150 yielded a gain of 60%
in 5 months time.
- HUI break-out 2005 at 250 yielded a gain of 66%
in 8 months time.
- A similar HUI break-out these days at 360 could
result in HUI trading above 450 levels within 6 months after break-out!
The
reasons for gold and its shares to take off were summarized in 'Gold - Poised for take off
as:
- Dollar heading to new record lows within 6
months from now
- Gold demand exploding in Asia and Middle East
- COMEX Gold option open interest shows potential
major up-leg in gold (courtesy of Adrian Douglas)
- HUI extremely undervalued against gold
Well,
it seems we got it all we wanted since gold appreciated by $60+ while the HUI
gained by 70 pts. So far so good but where do we go from here? Aren't the
gold shares and the yellow metal a bit over-bought at this point ? Do we face
the risk of a double top at $730? Sure enough we'll be hearing many of these
overbought/double top tunes coming days and yes, sure enough no bull market
goes up in a straight line but as always please keep the 'big picture' in
mind which says --> declining dollar, increasing demand, decreasing supply
and higher inflation rates all leading towards higher gold prices for years
to come. Gold exceeding $1000/oz before the end of this decade seems a sure
bet to me.
In
our piece "Gold- poised for take off"
we stated that it only seemed to be a matter of time before the FED would
start cutting its FED Funds rate in order to prevent a recession or even
worse a derivatives meltdown which could steer the US economy into a
depression. Well, we didn't have to wait for that long since that's exactly
what the FED did this week. The surprise however was the size of the rate cut
since most observers expected a 0.25% rate cut instead of the announced 0.5%.
What happened next was expected, stocks, gold and its shares took off just
like we mentioned in our previous piece, we wrote:
"many
experts believe that Bernanke will have to cut the FED Funds rate anytime
soon. In case that happens the dollar will resume its downtrend at an
accelerated pace and gold and its shares will take off!" END.
It
all seems like 1987 deja vu again. Greenspan slashed the FED Funds rate by 60
bps as a response to he October '87 stock-market crash in order to prevent a
1929 style crash. The result was a tanking dollar and skyrocketing gold and
gold shares. The gold shares appreciated by 50+% in just three weeks time
while gold rose 10%.... The dollar declined by about 9% during the remainder
of the year.
Furthermore
we concluded that no matter how you slice it, the outlook for the yellow
metal towards year end is bright! Despite the fact that the outlook for the
yellow metal may look bright many investors were afraid that gold stocks
could even sink further after the blatant sell-off in August which lead to a
HUI valuation as if gold were trading at $550! We informed our readers (Gold/HUI Update Bloodbath - part
III) that blatant sell-offs like these don't happen
that often and do present an excellent opportunity to buy some of your
beloved gold shares. The thing is that the gold shares were dirt cheap those
days and as the saying goes': 'BUY low and SELL high'.
We
concluded:
The message
to panicked gold share holders is simple: Yes, volatility is at extremes
these days, but that's all in the game, it's a typical characteristic of the
gold market and yes there aren't that much investors out there who have the
stomach to ride this game till the end. As the saying goes, if you can't
stand the heat then stay out of the kitchen, but if you are a true believer
in gold's historical role of a safe haven then these times do provide great
opportunities. The forced margin selling has pushed the gold shares to
extreme oversold levels indeed, levels only seen a few times during this
entire gold bull market which started in 2001.
END.
The
ones who had the nerves to invest at rock-bottom levels lately are rewarded
big time. Now to illustrate the extreme undervaluation of the gold shares vs
gold lately let's take a peak at the Gold vs HUI chart of Sept 03, 2007
Gold vs HUI chart -
September 03, 2007
This
chart showed the extreme divergence between gold and its shares, the HUI was
trading recently at same levels as with gold at $550! We concluded that such
extremes never persist for a long period of time so something has to give, or
the gold price has to come down or the gold shares have to catch up soon.
Well, it seems the latter is already well underway since the HUI is rising
faster now than gold.
The
updated Gold vs HUI chart confirms the statement above:
Gold vs HUI chart -
September 20, 2007
Now
sure enough many analysts will argue that we reached a double top at HUI 400
and $730 gold so we should be prepared for a sell-off here. Well, as stated earlier,
we might encounter some corrections here and there on our way to HUI 450 but
I'm quite confident we find ourselves in the middle of this move. The
relative charts are showing us exactly what I mean since there's still a lot
of up-side potential before we'll be hitting major sell-zones. Please take a
peak at the updated relative charts and judge yourself:
Relative
HUI chart:
The
r-HUI chart is gold divided by its own 200 dma.It has proven to be a reliable
indicator in spotting major bottoms for the gold shares in the past 5 years.
The
relative HUI chart demonstrates beyond any doubt that there's plenty of
up-side potential left before we'll be hitting major sell areas.
The
relative gold chart shows a similar pattern:
Relative
Gold chart:
The
r-gold chart is gold divided by its own 200 dma.It has proven to be a
reliable indicator in spotting major bottoms for the gold shares in the past
5 years.
Also
the relative gold chart shows plenty of up-side potential before hitting
major sell-areas!
Highlights
- Dollar broke important major support levels to
the downside
- Gold and its shares exploding after FED Funds
rate cut of 0.5%.
- A similar emergency rate cut in 1987 launched
the gold shares by 50% in just three weeks time.
- HUI extreme undervaluation against gold is
disappearing
- Resistance expected at $730 gold and HUI 400
due to fears for double top
- Minor corrections are inevitable but we're most
likely in a major HUI up-leg towards 450+ within the next coming months
Now where to go from here?
Well,
if you are a believer in gold's future then these are the time to increase
your gold share positions since the gold shares are still selling at fire
sale prices. In other words, downside risk is low. Higher gold prices the
years ahead will lift the entire gold share sector but the most exciting
rewards will come from junior mining companies making new discoveries.
Here
at golddrivers.com we track promising junior companies which we believe could
be huge winners before this decade is out. If you would like to participate
you could opt for a free trial subscription
The
Free trial includes all GOLDDRIVERS modules like Discovery News, Charts,
TOP-20 Favourites, Break-out ALERTS and GOLD/HUI analysis.
In
case you don't want to opt for a Free trial mentioned above you can drop a
mail here as well in order to join our Free mailing list. By doing so you
will receive every now and then a Free version of the Gold Drivers Report. helpdesk@golddrivers.com
Please
don't hesitate to fire your questions/remarks to:
ehommelberg@golddrivers.com
Eric Hommelberg
Editor, the Gold Discovery Letter, the Gold Drivers
Report
www.golddrivers.com
If these charts are
helpful you could opt becoming a GOLDDRIVERS CHART member ( $5 per month).
CHART members are receiving all golddrivers charts on a weekly base and are
given access to the GOLDDRIVERS CHART pages at golddrivers.com
If you want to add
to your gold share positions you could opt to become a PREMIUM member (one
month free trial) and join us in our hunt for juniors that could be on the
verge of a big discovery. Info on our subscription offers can be found at our
home-page at www.golddrivers.com
The Free trial
includes all GOLDDRIVERS modules like Discovery News, Charts, TOP-20 Favourites,
Break-out ALERTS and GOLD/HUI analysis.
In case you don't
want to opt for a Free trial mentioned above you can drop a mail HERE as well in order to join our Free
mailing list. By doing so you will receive every now and then a Free version
of the Gold Drivers Report.
| 
