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Short-Term Gold Stock Analysis

-- Posted Monday, 30 March 2009 | | Source:

By Adam Brochert


We are coming into a very strong seasonal period for gold prices and gold stocks – the April and May period is usually a very good time to be invested in the gold sector. I believe this year will be no exception. Gold stocks started a new cyclical bull market last fall within the context of an ongoing secular bull market in gold and gold stocks that began in the final months of 2000.


The first leg of this cyclical bull market will end some time this spring, almost certainly before the month of May is over if history is a useful guide. I think this last leg up is going to be a big one and will provide fast speculative gains for those invested in the sector. A reasonable model for the gold stocks to “rhyme” with in history is the first leg up in the last cyclical gold stock bull market from the late fall of 2000 to May of 2001.


The chart below shows what happened from the fall of 2000 until March 29th, 2001 (a daily chart of the AMEX Gold Bugs Mining Index or $HUI):




I used this time-frame as it shows how things looked in real-time for an investor or speculator trying to guess what would come next at the end of March (i.e. where we are now). Though there was a trend line break, the $HUI index had briefly broke above its 200 day moving average and the 50 day moving average was heading up. What came next is shown below:





Not bad, eh? I think a rhyme is pending and a current chart with prediction is shown below:



I think gold will also break to new all-time highs in U.S. Dollar terms this spring, surprising many in the deflation camp. Although I also subscribe to deflation for the current cycle, I understand gold’s role as a currency and since cash is king during a deflation, the best form of cash rises in value the most. Cash backed by the least amount of debt is the best form of cash to hold during a deflationary implosion.


I also believe that gold stocks will peak at a similar time as the general stock market this spring and then both will go down. However, for gold stocks, it will be a routine correction in a bull market, while general stocks will be heading for new lows.



Visit Adam Brochert’s blog:

-- Posted Monday, 30 March 2009 | Digg This Article | Source:


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