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Gold stocks at the "rim"
of the bowl
Clif Droke
February 26, 2004
After a scary $12 decline in
the gold price on Wednesday, Feb. 25, many traders and investors
are wondering if the recent fall in gold will translate into
an equally precipitous drop in the actively traded gold stocks.
A reader writes concerning
the gold/gold stock market,
"I would point out that
the gold stocks as a group tend to anticipate the movement in
gold. Therefore, as gold reached $430 soon after the new year,
gold stocks refused to confirm the new high. Then it is telling
that gold tanked in less than 6 days of the new high.
"Now, the reverse is happening.
On Friday, as gold reached the low in the new year at around
$397-8, the gold stocks as a group refused to confirm the low.
The last time when gold was near this level around late January,
gold stocks were about 4% lower!
"If the price of gold
would break the support and go down from here, Friday (Feb. 20)
would have been the perfect opportunity for gold stocks to go
down big. But that did not happen. Friday is usually the ugliest
day of the week for gold stocks. Judging from the percentage
decline point of view, on Friday gold's decline of -2.91% compared
to gold stocks' decline percentages (HUI -3.28%, XAU -2.68%,
GOX -2.24%) is also telling. Last time when gold dropped to this
level, the decline in the gold stocks was quite a bit larger."
"Even your favorite gold
stock indicator, FCX is doing very well. The last time when gold
was at this level, FCX was priced at around $36, and Friday at
around $41... FCX is also a major copper producer, and copper
was at an 8-year high last Thursday."
Very insightful comments and
much appreciated. So is the gold stock correction over? Let's
take a look at a leading blue-chip gold stock to try and get
some insight. Below is the daily chart of Placer Dome (PDG).
Notice the potentially bullish parabolic bowl in this chart.
PDG precisely tested the outer "rim" of the bowl on
Wednesday, Feb. 25. The test of the rim was successful, but we
must wait to see follow-through on Thursday to see if this will
bowl will remain unbroken. Considering the bullish crossover
signal in the stochastic indicator for PDG on Wednesday I believe
the chances favor this bowl remaining intact. A breakout above
$17 will signal that the bowl is alive and well and that should
usher in a re-test of this month's previous high.
Along these lines, another
reader wrote to me the other day with the following observation:
"I've just drawn a parabola
on the 8-year chart of the HUI index and noticed that we may
touch the side of the bowl in a couple of months. My question
is, will this be the time to unload in a big way if the chart
breaks decisively through the side?"
My answer is that a breakdown
of the bowl would obviously be a bearish development, but we
aren't there yet so as long as the bowl remains intact we must
consider the dominant trend to be still up.
Clif Droke
February 26, 2004
eMail: clif@clifdroke.com
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Droke
321gold Inc
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