Gold and Gold Stock Update

Jordan Roy-Byrne
Apr 3, 2007

Today (Monday) could turn out to be a key inflection point for the precious metals. Gold plunged in early US trading by $8 but by the end of the day had recovered the entire loss. The gold shares bucked gold's early weakness and finished strongly higher on the day. In looking at the technicals on both gold and gold shares, I believe it is a strong possibility that the train's engine is revving as the train is pulling away from the station.

Here is a daily chart on gold:

There are distinct similarities between autumn of 2005 and right now. In both periods gold emerged from a nine-month consolidation, pulled back to the breakout line (which occurred at the 100 day moving average) and successfully held that support. In the previous instance, gold moved higher by nearly 70% before it peaked. Going forward the resistance areas to watch are $800, $888 and $1,000.

Now let's take a look at the HUI Index (gold stocks):

We are using a "line chart" in this daily view to smooth the price action. The HUI's consolidation over the past week held the 335 mark, which is one point above the 100 day moving average. Going back to 2005, we can see that the 100-day moving average usually contains lows within an intermediate term uptrend. Today's strong move off of that mark augurs for higher prices in the near term. The entire consolidation has taken the form of an ascending triangle pattern, which typically is bullish. A break above 360 would target 450.

Now let's take a look at the weekly chart:

The weekly chart is indicating that something big is potentially on the way for the bulk of 2007 and much of 2008. Momentum (RSI, MACD) has been building but it is nowhere near overbought levels. The Bollinger Bands are pinching in and we can see that the width is as low as it was in the summer of 2005. All of this is a very bullish recipe for precious metals investors.

To find out which stocks we hold in our Model Portfolio and which ones we are watching for entry points, sign up for our free email newsletter at the link below.

Apr 2, 2007
Jordan Roy-Byrne
Website: www.trendsman.com
Email: Trendsman@trendsman.com

(Trendsman is currently a free email newsletter)

321gold Ltd