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Gold Stock Truth Serum

Stewart Thomson
Apr 9, 2013

  1. Is gold bullion leading gold stocks higher, or is the current “wet noodle” action of most senior gold stocks suggesting that the recent lows at $1540 will fail?

  2. I don’t think I’ll join the debate about whether the $1540 area is some sort of “ultimate bottom”, but I will suggest that both gold & silver seem to be getting ready for a nice rally.

  3. Please click here now. You are looking at the weekly chart for gold. Generally speaking, I believe in the “three strikes” rule. In baseball, it’s “three strikes and you’re out”.

  4. In the 2011-2012 timeframe, gold touched key HSR (horizontal support and resistance) in the $1577 area, three times.

  5. In 2013, gold has arrived there, for the 4th time. It’s unknown whether gold rallies strongly from here. It’s also unknown whether gold will fail here, and plunge lower.

  6. I will suggest that time in the congestion pattern “hourglass” is running out quickly, and a trending move, either up or down, will begin very soon.

  7. From a technical standpoint, congestion patterns have roughly a 2/3 chance of consolidating the primary trend (up in this case), and a 1/3 chance of reversing it. This is clearly good news for gold investors.

  8. Also, a poll taken at the recent Dubai gold conference showed that about 63% of the participants believed gold would rise to $3000 in 2014, and about 37% believed it would fall towards $1000.

  9. The poll and technical analysis of gold’s congestion pattern are roughly in “agreement” that gold should move higher.

  10. Please click here now. Right now, my focus in the gold market is this daily chart. Technically, it’s looking better and better.

  11. Gold is trading in a range between $1540 and $1620. A move below $1540 would open the (trap) door to about $1460, while a breakout above $1620 would suggest a rally to $1700.

  12. Note the position of my “stokeillator” (14,7,7 Stochastics series). It’s moved down nicely. In the $1615 area, I suggested that gold needed to rest, due to the nosebleed level of the stokeillator.

  13. Gold has rested, and looks to me now, like it’s a cat that is stretching lazily, after a wonderful nap. If I was a “dollarbug mouse”, I would consider looking for some serious shelter, very soon.

  14. The red lead line of the stokeillator sits near the 30 area, and it’s beginning to turn up. There’s a chance that it could decline towards the oversold area (below 20), if Wednesday’s critical FOMC minutes report contains a bearish surprise.

  15. Regardless, I’m going to predict that Friday’s employment report is where Ben Bernanke’s focus will be now.

  16. Please click here now. This shorter term hourly bars chart also hints that gold should move higher. I think the next minor trend move will be a rally towards $1620, rather than a decline to $1540.

  17. There’s a rough-looking head & shoulders pattern in play. If it fails, gold will probably fall to $1555-$1560, before mounting a more serious rally. I don’t think it will fail. I think the pattern will take gold up, to test the key $1620 HSR area.

  18.  Please click here now. You are looking at the daily chart for silver. My stokeillator “traded” down to about 15, and is now hooking up nicely.  Overall, silver looks better than gold. Its strong technical position also adds weight to the argument that gold’s rally can continue, even if it gets “whipsawed” by the release of the FOMC report.

  19. Most investors in the gold community own a lot of gold stock, with an emphasis on the junior sector. It’s been tough lately, but since the lows at $1540 occurred, the juniors have been looking better than the seniors.

  20. I believe that it’s critical to keep an eye on trading volume right now. Some technicians say that following volume is like drinking truth serum.  

  21. I don’t mind seeing the price of gold stocks decline further from here, but if that happens, I want to see volume decline, too. That’s bullish technical action. If there is a rally, and I think there will be, I want to see volume rise.

  22. Please click here now. You are looking at the GDXJ chart. If you can, check the volume at the end of each trading day. Check it for your favourite gold stocks, too.

  23. Do you see how low the trading volume was yesterday? The price declined, and so did volume. That’s bullish technical action.

  24. If price rises today, and I hope you all want that to happen, then volume should rise too. The bulls are beginning to fight back!

Apr 9, 2013
Stewart Thomson
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