Did We Just See the Last Gold Stock Dip?
I've been talking for several weeks now about an approaching new bull run in gold stocks. Gold stocks have been consolidating in a long sideways trading range for over a year now. Once they breakout of this range they will begin a new upleg in their bull market - one that will drive the XAU up over 50% and many gold stocks to triple digit returns.
On Thursday gold fell over $16 an ounce to fall below its May low while gold stocks as a whole held their May lows, strengthening the positive divergence between the stocks and the metal since the May low in the XAU.
This is important, because in all previous corrections over the past year gold stocks fell harder than gold. Either the XAU/gld ratio would fall ahead of gold falling, as the gold stocks led the metal down, or else gold stocks would simply fall more than gold. If you recall during these times after gold stocks dumped I'd say we'd need to see gold catch up with the drop in the metal to be able to call a bottom.
Well on Thursday something different happened. While gold fell over $16 in one day the XAU/gld and HUI/gld ratios didn't breakdown and on Friday they actually began to turn up a bit. Gold stocks shrugged off a $16 plus point drop in gold.
This is something we have not seen them do in over a year. You can see in the chart above where I compare the three most recent gold stock drops and the action in the XAU/gld ratio. You can see the trend for yourself.
If this action continues over the next 72 hours than I think a gold stock breakout will indeed occur before this month is over. My article about gold bears having "two weeks to live" last week will end up being their final warning. Gold shorts will scramble to cover their positions.
Right now the XAU has resistance at 143 and support at 136.75. If it tests 143 this week it will be as sure of a thing as you can get in the stock market that its going to breakout this month.
One thing that has me so bullish about gold stocks is the fact that the 200-day bollinger bands are coming closer together on the XAU than they have been ever since I started to follow gold stocks in 2002. The 200-day bollinger bands measure the long-term volatility of a stock or index and when they come together it means that a trend of long-term consolidation is about to end and a new long-term trend is about to begin. We seen this happen in 2005, 2003, and 2002 in gold stocks and each time it did a huge new uplegs in the gold bull market occurred. The fact that the bollinger bands are more narrow than they were during those times suggests that the next upleg may dwarf the previous ones.
While the 200-day bollinger bands are narrowing, the 200-day bollinger bands on the dollar narrowed earlier this year and are now starting to expand again. This suggests that another down leg to the dollar bear market is developing. I see the dollar testing its 80 dollar 30-year support level within the next six weeks - and if that is broken gold stocks will go totally nuts to the upside.
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