With reference to the following daily chart, over the past two weeks the HUI has moved from resistance at 460 to support at 420 back to resistance at 460. The chart already has a bullish tinge, but a solid break above 460 would enhance the picture (from the perspective of those who are long).
We have been using Royal Gold (RGLD) as a gold sector indicator for years, although until two weeks ago we had never recommended buying it (in the 30th June Weekly Update we suggested buying the stock and/or the January-2009 $30 call options). RGLD has been mired in a consolidation for the past 2.5 years, but the recent price action indicates that an upside breakout may finally be about to occur. Friday's rally might have pushed the stock slightly above its downward-sloping trend-line and might therefore have constituted a breakout of sorts, but the key resistance level is defined by the October-2007 and January-2008 peaks at $35.23 and $35.26, respectively. A solid close above this resistance would break the sequence of declining tops that dates back to January of 2006, which would be a bullish omen for RGLD and for the overall sector.
Although it doesn't feel like it right now, buying gold (or silver) in the ground, especially when the ground is in a politically secure region, should ultimately prove to be a very good investment strategy. Buying gold in the ground is a very effective way for a person to position him/herself for the eventual huge REAL rise in the gold price because it is like buying a gold call option with no expiry date. As things currently stand there are many legitimate concerns about exploration-stage gold mining companies, but almost all of these concerns will evaporate if there's a sufficiently large rise in the real gold price (the gold price relative to the prices of other commodities). For example, there will always be people willing to finance the construction of a new gold mine if the mine's projected return is high enough.
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