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1. While gold and silver
bullion are important holdings to many members of the gold community, it is
the gold stocks sector that is the “first
love” of most investors.
2. Mining
companies offer investors the opportunity to purchase a stake in real gold in
the ground, at prices that are
essentially far below the current market price of gold bullion.
3. The
million dollar question is not whether gold stocks enable the investor to
purchase gold for far less than $1600 an ounce, but whether that gold can be sold at a higher price at a later point
in time.
4. As
good as gold stock investors may be at buying a stake in gold reserves that
can be produced at a cost that is very low, they can only realize a profit if
the price of their shares increase.
5. So,
are gold share prices now set to rise or fall? Please click
here now. You are looking at the daily chart for GDX. There’s an
epic “clash of the titans” battle underway.
6. In
one “technical corner” of the fight ring, there is a head
and shoulders top continuation pattern, with bearish implications.
7. The
price target of that pattern is the $36-$37 area.
8. In
a fight, each opponent seeks to exploit the weaknesses of their opponent.
Please note the big volume bar that occurred, as GDX fell below the red
neckline area around $42.60.
9. When
price breaks upwards from the neckline of a head and shoulders bottom
pattern, the volume should increase strongly. That’s not the case for a
legitimate head and shoulders top pattern; when price goes below the
neckline, volume should not spike upwards.
10. The
bottom line is that this head and shoulders top pattern is not as powerfully
bearish as it initially appears to be.
11. The
other “technical titan” in play here is a very bullish double
bottom formation. Please click
here now.
12. A classic double bottom pattern has certain
technical characteristics. It is probably the most well-known pattern, but a
real double bottom occurs very rarely, and
only at the end of a bear market or major intermediate correction.
13. The current sell-off in
gold stocks certainly qualifies as either a major correction or a full bear
market. As price makes the first low, the technician wants to see volume
spike sharply, and that happened here.
14. Many investors were in a state of panic as that
first low occurred, and their selling
is what produced that enormous volume.
15. The second low in a
classic double bottom pattern needs to occur at least a month after the first
one, and it should occur on much less
volume. You can see that the volume on the 2nd low is
dramatically less than the volume at the first low.
16. Another key
“textbook” characteristic of the second low of this formation is
meandering price action. Note the small black box I put on the chart. You can
see that GDX price movement is currently weak
and aimless.
17. The good news is that
the double bottom pattern on the GDX price chart is technically perfect. The
bad news is that you are living through a “super-crisis”, where
personal surprise is the main theme.
18. The double bottom
pattern that has formed on GDX and many individual issues is a very positive
event, but it is not a guarantee. If the bearish head and shoulders pattern
wins the clash of the titans fight against the bullish double bottom,
it’s critical that you are able to buy GDX in the $36 area.
19. Oil prices are a key
driver of gold. Please click
here now. Note the head & shoulders bottom pattern in play now.
Yesterday’s price action took oil back to the “neckline zone” of about $87-89.
20. The problems in Syria
seem to be intensifying almost daily. I’m a buyer of oil here,
partially for that reason, but mainly because it is simply on sale from much
higher levels. I’ll be a much bigger buyer if this head and shoulders
pattern were to fail, taking price below $77.
21. Oil is a strategic asset
and I consider it to be a form of wealth itself, just as money is a form of
wealth. I know that mainstream media has told you that rising oil prices
reflect rising demand, and the Dow has risen while oil has risen.
22. That’s true, but
it is also true that if oil were to rise over $120 a
barrel, that paradigm could change dramatically.
Oil prices that are “too high” can cause huge sell-offs in the
stock market.
23. The drought has caused a
food price spike. Natural gas prices have been creeping higher. A flare-up of
Mid-East tensions could cause an oil price spike. These issues are not spoken
about by Ben Bernanke, but you can be sure he is watching them intently.
24. These price spikes are
happening as the US economy begins to slide back into recession. I think QE3
is coming, and it will be so comprehensive that it may be better termed GR1 (Gold Revaluation 1)
!
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Cheers
St
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