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Best Week This Year

Clive Maund
August 23, 2004

Last week we witnessed the most positive action in gold and the precious metals stocks that we have seen all year, and silver now looks poised to break sharply higher too.

The action in gold was so positive because the break above $410 indicates that it is has at last completed the long basing area above the long-term uptrend line, or is very close to doing so - even if it dips back toward $400 from the short-term overbought condition, it should turn up again and proceed to advance initially towards $430.

Similarly the gold stocks, although short-term overbought, have signalled their intent by breaking strongly above the critical resistance at 205 on the HUI, and remember, being overbought does NOT necessarily mean that a reaction has to follow.

Let's look at these developments now on the charts, starting with the 3-year chart for gold. Here we see the fine long-term uptrend and how the action for much of this year, although looking toppy at times, served to correct the advance of late last year. Friday's action appears to signal completion of the base area that developed over the past few months around and below $400. Note that although gold is rather overbought on a short-term basis, it certainly isn't on an intermediate basis, so that if we do see some reaction or consolidation in coming days it will put it in an even better position for further advance. The long-term uptrend shows that, once the important resistance at $430 is overcome, the target for this advance is the upper trendline - implying a move the $480 area. This target could well be exceeded as the uptrend could accelerate.

On the 1-year chart we see that, having broken above the $410 resistance, gold appears to be on its way to the next staging post at $430. Moving averages are swinging into bullish alignment, with the 50-day rising up through the 200-day, signalling that the time is ripe for an advance. The MACD and RSI indicators show an overbought condition developing, which will probably be moderated by minor reactions or periods of consolidation along the way.

Turning to the HUI index 1-year chart, we see that yesterday's breakout by gold was preceded by a stocks breakout above a very important resistance level on Thursday. The index broke sharply above the 205 level, signalling that the (larger) stocks are ready to work their way through the resistance arising from the November - April top area. At this time even the juniors should start to pick up. Currently the junior scene resembles a battlefield after a major battle, such as Blenheim; the survivors are still laying on the ground groaning. There are some great bargains to be picked up amongst the juniors, although obviously it is very important to exercise discrimination. We will be examining some of these on the site in the time ahead. A minor reaction by the index from its current short-term overbought level, even if it takes it back below 200 temporarily, will not invalidate the bullish signal given by last weeks' breakout.

Silver is looking very interesting at this time. Although gold broke above its $410 resistance on Friday, silver has yet to break above its important resistance at $7. However, it looks set to do so very soon. Subscribers already know how I rate the chances of an upside breakout by silver from the reports on Mines Management, Sterling Mining and Western Silver posted last week. Although it could disappoint and back off again from here, a sharp breakout above the $7 resistance at the top of the huge April gap looks much more likely to me. Looking at our 1-year chart, we see that it has spent the past 5 weeks or so consolidating its position in the high $6's, and is now very well placed to take out the resistance at $7, which it is likely to do with a big up day. Note the very bullish alignment of the moving averages beneath, with the 50-day moving average having just risen through the 200-day. The MACD and RSI indicators also show that it is not seriously overbought and that there is plenty of leeway for a substantial advance over the short and medium-term.

Gold and silver stocks that are expected to perform well in the developing uptrend are highlighted on my site www.clivemaund.com and we will be turning the spotlight on more of them in the time ahead.

August 22, 2004
Clive Maund

Clive Maund is an English technical analyst, holding a diploma from the Society of Technical Analysts, Cambridge and living in southern Bavaria, Germany where he trades US markets.

Visit his website at clivemaund.com

No responsibility can be accepted for losses that may result as a consequence of trading on the basis of this analysis.

Copyright ©2004 CliveMaund. All Rights Reserved.

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