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The Best Gold-Buying Opportunity of the Year

By Jeff Clark
Tuesday, April 7, 2009

It's time to take another look at gold.
 
It has been about a month since we last analyzed the shiny yellow metal. Back then, gold was trading for about $950 per ounce, and we were bearish on the short-term prospects. The gold stocks were underperforming the metal, which usually leads to poor performance in gold itself. I suggested buying a little gold if it dropped below $900 per ounce, and buying a lot of it if it dropped to $823.
 
The metal remained stubborn all month long, and we only got one chance to buy gold below $900. Yesterday, however, gold dropped below $870. And it looks like we may zero in on that $823 target sometime over the next few trading sessions. Take a look at this chart...
 
 
You can see how gold broke down through its rising support line last week and has been in a steep decline ever since. The next clear support zone is down around $823. A move to that level would give us one of the best-gold buying opportunities of the year – especially if gold stocks can turn around from here.
 
Gold stocks tend to lead the metal itself. Gold stocks peaked just prior to gold peaking above $1,000 per ounce back in February. And gold stocks will bottom before gold hits its final low for this year. By the look of the following chart, however, gold stocks may be close to a bottom right now...
 
 
This chart compares the performance of gold stocks (GDX) to gold (GLD). When the chart is rising, gold stocks are outperforming the metal. When the chart is falling, gold stocks are lagging behind.
 
The best time to own gold is when the stocks are outperforming the metal.
 
Right now, though, the chart is in a short-term downtrend. The metal is actually doing better than the stocks, so we ought to expect a bit more downside action. However, the chart is morphing into an ascending triangle pattern. This pattern usually breaks to the upside. If the gold stocks-to-gold ratio can find support around 0.375 and then turn higher, gold will turn higher as well.
 
So keep one eye on the price of gold and keep another eye pegged to this ratio. If gold drops to $823 per ounce at the same time the gold GDX:GLD ratio drops to 0.375, then we may be looking at the best gold buying opportunity we'll see this year.
 
Best regards and good trading,
 
Jeff Clark




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Market Watch
Symbol Price
Change
52-Wk
S&P 500 1221.53 +1.3% +10.1%
Oil 37.77 +1.5% -2.8%
Gold 135.20 -0.1% +13.4%
Silver 27.93 +0.4% +47.9%
US-Dollar 80.67 -0.8% +8.1%
Euro 1.32 +0.6% -12.1%
Volatility 19.39 -9.2% -8.2%
Gold Stocks 564.53 +1.3% +10.6%
10-Year Yield 3.00 +1.4% -9.6%

World ETFs
Symbol Price
Change
52-Wk
USA 122.56 +1.3% +10.2%
Canada 30.44 +1.3% +13.8%
Russia 21.63 +2.3% +16.7%
India 37.73 +1.9% +20.0%
Israel 16.47 +0.9% +9.7%
Japan 10.58 +1.0% +7.4%
Singapore 13.88 +1.0% +19.2%
Taiwan 14.72 +1.6% +17.8%
S. Korea 56.56 +1.7% +22.8%
S. Africa 70.85 +3.9% +22.9%
China 45.06 +1.4% +0.1%
Lat.America 52.82 +1.4% +6.7%

Sector ETFs
Symbol Price
Change
52-Wk
Oil Service 136.18 +1.5% +14.8%
Big Pharma 64.13 +0.6% -3.3%
Internet 72.13 +0.7% +22.3%
Semis 16.03 +2.1% +28.9%
Utilities 31.21 +0.3% +1.6%
Defense 18.51 +1.3% +10.1%
Nanotech 9.99 +1.3% +0.0%
Alt. Energy 9.95 +1.4% -4.4%
Water 18.31 +1.1% +12.2%
Insurance 16.07 +1.2% +18.3%
Biotech 20.58 +1.1% +27.1%
Retail 19.65 +0.1% +28.4%
Software 24.59 +0.9% +24.1%
Big Tech 53.73 +1.0% +21.9%
Construction 12.99 +2.1% +13.3%
Media 13.57 +1.1% +25.0%
Consumer Svcs 67.26 +0.8% +23.3%
Financials 54.87 +2.4% +5.2%
Health Care 64.22 +0.7% +1.3%
Industrials 63.25 +1.6% +19.7%
Basic Mat 73.57 +1.6% +21.6%
Real Estate 55.24 +1.4% +23.8%
Transportation 91.17 +1.4% +25.6%
Telecom 22.48 +1.1% +17.1%