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Depending
on whether you prefer to see the glass as half full or half empty, the
technical picture for gold stocks is either great – or horrible, at
this point.
Bad
news first:
Three Megaphones
The
HUI continues to trace out one successive megaphone pattern after another. There
is the big one that was begun in November-December last year.
It
seems like the stocks just can't get themselves to break out of their funk,
and that makes a lot of sense when you consider declining ore grades, no big,
new discoveries, and astronomical and rising production and transportation
costs, not to mention the environmental concerns.
Yet,
despite presenting such an anemic picture, there is
light at the end of the tunnel. Blinding light, one might say.
The
fact that the successive megaphone patterns are all following along the upper
border of the configuration speaks well for the stocks' future prospects. At
least, there are no exacerbating wild swings that take the HUI all the way
from the top to the bottom of the original "big" megaphone starting
in November.
A Rising Channel
Taking
away the lines drawn above and starting with a clean slate, two other and
equally compelling technical patterns can be demonstrated. One of them is a
rising up trend channel if one ignores the short dip below its lower trend
line in mid-December.
The
other is a powerfully rising triangle or pennant formation:
The Rising Pennant
What
they all share in common is the upper boundary or trend line. The HUI must
break out of that one in a very convincing way before it can shed its current
doomsday pattern and overcome the tremendous gravitational pull of the
factors outlined above.
That
breakout, however, will not necessarily come from gold's passing of the
psychologically important $1000 barrier. That, alone, is not enough.
Naturally,
as long as gold and silver keep on rising, the stocks are very unlikely to
suffer significant falls. However, if gold does take its
by now near-traditional mid-year plunge in 2008, the downside potential of
the stocks is absolutely humongous. That point alone screams for caution to
the utmost for hopeful gold stock investors.
But
then again, there may very well not be a midyear correction this year.
In
times like these where the entire fabric of the US financial system is being
torn apart by incurable distrust among banks when it comes to lending to each
other (witness Bernie's latest "prime for slime" ploy of swapping
pristine treasuries for subslime-infected
mortgages), erratic, frantic and ill-conceived Fed policy moves are lighting
gold's afterburners on its rise into the fiat-dollar price stratosphere.
The
point is: It pays to wait.
If
by the end of June no major correction in the gold price has occurred, the
chances will be very good that it will not happen.
The
crucial factor to watch out for is US treasury bond prices.
Chaos in the Bond Market
Bond
investors, as sophisticated as they are always said to be, are a very
confused bunch right now. The level of their profound confusion can easily be
gauged from the horrific, terminally disorganized picture of the30-year
bond's price movements.
Just
look at the tremendous gaps, both on the upside and the downside, and the
highly erratic, hapless trading pattern since the super-top after January
22nd (red oval) and compare that to the clear and defined trend pattern shown
in November's up-move (blue oval):
Poor
bond investors. Sophisticated they may be, but their thinking is still stuck
in the paper and computer blip world of breakable promises and
government-decreed make-believe. Right now, they are disoriented and have no
clue where to go. They will soon get one.
As I
keep saying: The day the bond investors and the regular stock investors
simultaneously abandon any last hope of future gains in their respective
investment markets (other than shorts) will be the day the gold stocks will
start enjoying a mania that puts all prior manias to shame.
In other words: Gold stocks will take
off when everything else (besides precious metals) goes to hell.
However,
a mania it will certainly be, and it should be treated with the same caution
as all manias. The coming gold stock mania can get so out of hand that even
consistently rising gold prices will not soften the blow when it finally
collapses.
Gold Not Mania-Prone
Gold
itself, on the other hand, will keep on rising and rising in fiat terms. It
may occasionally enjoy its own manias, but their breakdown will not affect
the underlying bull market. They will merely mark occasional up ticks within
its inexorable rise.
For
example, gold could fall back to the $900-$950 range without violating its
current Phase III bull run, or back to $750 without violating Phase II, and
all the way back to $550 per ounce without breaking its Phase I uptrend going
back to 2001.
$750
may be revisited briefly in a super-correction, but never $550, quite simply
for the reason that, by the time gold goes back down that far, there may not
even be a US
fiat-dollar currency left to fall against!
While
investing in gold stocks will, like all stock-investing, remain a matter of
knowing when to buy and knowing when to sell, successful investing in
physical gold will continue to be mostly a matter of knowing when NOT to sell
for a very long time.
Monitor
subscribers will know both.
Got gold?
By : Alex Wallenwein
Editor,
Publisher
The EURO vs
DOLLAR GOLD-MONITOR
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investing only makes sense if you can see where you are going. The Euro vs Dollar
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