A few weeks ago, we predicted that gold and energy would remain range-bound until after the elections. This range has held pretty tight since the September correction, with gold dancing around between $570-$600 and oil trading in the $57-$60 area. October has been a good month for gold, with the price steadily climbing from a low of $560 to over $600. This uptrend has excited some goldbugs, but we don’t foresee any real movement until after the mid-term elections. In fact, gold has since slid back under $590 and is looking to have a very weak opening in the Asian markets. Amazing really, considering retaliatory threats by both Iran and North Korea. Not to mention that October has already become the deadliest month of 2006 in Iraq. But pay no attention, the Dow is marching on and has broken the 12,000 benchmark going into the final two weeks before the elections. You would have been hard pressed to escape the media blitz shouting the news. Good times are here again.
That one was too easy to call. Our previous post suggested picking up some blue chips or going long the DIA in anticipation of continued strength. That strategy has paid off over the past few weeks and should continue for a few more. But you might consider trailing stops as we move closer to November 7th.
The technicals are turning increasingly bullish for gold. After dropping to 280 on October 3rd, the HUI has quickly bounced back, climbing to nearly 310 in just two weeks. Indicators are also turning up, with the RSI resting above 50 for the first time since the September correction and the MACD climbing towards positive territory. But the HUI still has plenty of work ahead of it. We still need to climb through and hold above both the 50 and 200-day moving averages before feeling good about the next move up. But when this bull gets its legs again, that 20-point gap will get filled in a heartbeat. We have seen it in action before and it is a beautiful thing to behold.
Looking back a bit further, we can see that the HUI appears to have formed a solid floor and good support around the 280-290 area. It tested this support in March and in June of 2006, only to bounce strongly upwards. This latest test has not bounced back as quickly, but it has held. And this holding is healthy consolidation and set up for what we expect to be a spectacular wave 3.
We have been keeping a close watch on how individual gold and silver stocks have been performing during this correction and consolidation. There are some clear gems showing extremely promising signs. We plan to be positioned in these companies in early November and will post our picks along with the technical and fundamental reasons we believe they will be the top performers of the next upleg. Stay tuned.
If you haven’t already, please remember to subscribe to our email before November 1st in order to be entered in our contest to win a 10-ounce silver bar. Good luck and happy investing!