Saturday, March 13, 2010

Inching Closer to the Gold Explosion

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A big bull move higher in Gold and Gold stocks, that is. The correction in Gold and Gold stocks has been longer than I anticipated, but I think this is simply setting up a larger and stronger base. Larger and stronger base = longer and stronger subsequent move higher. Let's play a game called "where have I seen that correction before." Here's a chart of the last 2 years or so in the Gold price (daily linear scale line plot of $GOLD):

As if that wasn't enough, one of my favorite potential parallels for a "rhyme" matches up with the current correction quite well - the 1973 time frame. No, things are not exactly the same now as they were then, and no, things will not play out exactly the same. Man, I wish it was that easy! Anyhoo, here's a chart of the action in Gold during that time (chart stolen from, a great site):

And here's what happened next:

And for those who insist that a falling stock market will pull down Gold and Gold miners and for those who insist that a falling U.S. Dollar Index will support the stock market, here are charts of the S&P 500, U.S. Dollar Index, and Barron's Gold Mining Index from this same 1973 time period (first 2 charts stolen from and I think I stole the 3rd chart from a piece by analyst Mark J. Lundeen):

A 10 year daily chart of the U.S. Dollar Index (log scale) shows how much the U.S. Dollar Index likes to break down from head and shoulderish-type tops (like the one we are in right now) with a double peak in the TRIX indicator, whether on a shorter or longer term basis:

Bottom line: Call me a broken record, but I remain wildly bullish on Gold and Gold stocks at current levels. I still believe we will be making new highs in the Gold price and Gold stock indices before the spring is over. It is options expiration week starting Monday (i.e. time for some price swing shenanigans courtesy of the market makers) and I'll be looking to accumulate more Gold stocks and/or Gold stock ETFs if any significant price volatility to the downside occurs.

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