Tuesday, July 7, 2009
Gold stocks have been taking it on the chin lately. And that's bad news for anyone who owns gold.
Gold stocks often move ahead of the metal. A rally in the stocks usually leads to a rally in gold, and a decline in gold stocks often foretells of weakness in gold. So the 20% drop in the Gold Bugs Index (^HUI on Yahoo Finance) over the past five weeks is a bad omen for the shiny yellow metal.
But a little pain now could lead to the best shot we'll get to buy cheap gold this year. As I've mentioned several times before, gold is a good buy anytime it drops below $900. And by the look of the following chart, it'll likely get there within the next week or two...
Gold is on the verge of breaking to the downside of a consolidating-triangle pattern. A move below $920 per ounce will likely set off a short-term correction down to support around $870.
That's a good spot at which to add a little more gold to your holdings. But pay attention to the action in the gold stocks. If they're still weak by the time the metal hits $870, then support is probably not going to hold, and we may get a move all the way down to the February lows around $810.
That'll be the time to take a major gold position.
You see, we know gold is in a bull market because the metal is trading above its 40-month exponential moving average (EMA), which defines a bull market for gold...
A move down to support at $810 puts gold just above its 40-month EMA. It keeps the bull market intact, and it creates a wonderful risk/reward setup for buying the metal.
Best regards and good trading,
Metals and mining slammed yesterday... all down 5%-10%.
Natural gas ETF strikes new 52-week low.
Oil drops 9% in one week.
Several regional banks hit new lows... sector down 25% from May peak.