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Two weeks ago
the XAU gold stock index attempted to breakout and begin
a run to its 52-week highs. After bottoming in May, the XAU rallied up to 95
where it encountered triple resistance - its 150-day moving average, its 50% retracement point of the November top and May bottom, and
a powerful downtrend line connecting the November and March highs.
This 95
resistance level has kept the lid on the XAU and gold stocks for over 6 weeks
now. Two weeks ago it looked as if it was going to breakout. The XAU had held
up then for several weeks while gold underwent a correction. Instead of
crashing with the price of the metal (which had plunged over nine dollars in
a single day at one point) the XAU shrugged of the correction. What's more,
the index consolidated and traded in a narrow range, which is almost always
the prelude to a large move.
On July 12, the
XAU gapped up and moved above 95 only to stop within .03 of its July 95.10 peak. Two days later the price of gold dropped again,
falling below $420 an ounce. The XAU finally got dragged down by the gold
sellers and briefly fell below 90 last Tuesday. It has since snapped right
back and is now less than $2 away from its critical 95 resistance level.
The XAU is now
gearing up to test the 95 level again and this time will likely succeed in
breaking it. Why now? Because this time the short-term correction in gold
appears to be over. Gold succeeded in bouncing off of its 65-week moving
average at 417. This is important because the 65-week moving average has held
as support throughout the past four years.
What's more,
gold commercial traders have been rapidly closing out their short-positions
over the past few weeks. The trend for gold is now up and that means that
gold will no longer pressure the stocks.
What we have
seen over the past two weeks is a classic short-term correction in the XAU
during a bullish uptrend. Bullish corrections for the XAU are characterized
by the XAU continuing to outperform the metal, which it is now doing, and
they are quick and furious. The stocks drop fast but they snap back even
faster. The problem for most people though is that the drops take them by
surprise and shake them out of their positions.
This is not the
time to be scared, it is time to be bullish. Everything is lining up for this
to be more than simply a nice rally in gold stocks like we saw last summer. Gold
stocks are now poised to go to their 52-week highs before gold does. We
haven't seen this happen in almost two years and it is that type of action
that brings major legs up in gold. This time it will bring phase two of the
gold bull market.
Things seem slow
right now, but don't let that fool you. Behind the scenes, smart money is
accumulating gold stocks ahead of the next big rally.
I am now
personally holding a large gold position that I bought in three stages since
the May bottom in gold. It is time for you to buy any gold stocks that you
are thinking about and to revaluate your entire gold portfolio. You should
sell stocks that have lagged since May and rotate that money into the
stronger performing issues. Now is the time to position yourself.
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
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