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We are becoming increasingly optimistic about the short-term outlook for gold stocks. In the chart below, the HUI bounced nicely off the 200-day moving average and has since shot up through the 50-day moving average. We anticipate this action to be the precursor to a sharp upside breakout.

Head fake? We don’t think so and have added to our long positions. For confirmation, we will look for the HUI to break through the recent high of 353. If this happens, it is time to load up and enjoy the ride back towards 400. Summer could keep the gold price rangebound for a few more weeks, providing some much-needed consolidation before making new highs in November/December.

However, in case this jump turns out to be a head fake, we are setting tight stops and will consider any HUI downturn (especially a close below 310) to be a sign that further correction is imminent.

Check back later this week for details on which stocks we are moving into, both in gold and energy.

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