A mixed bag in May for the gold stocks
(but still a few bargains out there)

Clif Droke snippet
May 8, 2006

Below is an extract from Clif Droke's Gold Strategies Review for May 2006

As the headline to this newsletter suggests, it's a mixed bag out there in gold stock land with some stocks exhibiting signs of being "overbought" and ripe for corrections. Others are coming still in neutral-to-bullish consolidation or sideways patterns, and a few are even coming off "oversold" internal readings and are due a turnaround (see stock section for a review of these equities). All in all, this mixture of signals will likely conspire to produce a continuation of the recent pattern we've seen in the XAU index of late, namely an upward-sloping trading range. This is how I interpret these signals going into May.

The XAU index closed higher by 2.64% on Thursday, May 4, at a new high of 162.66. Despite a few lagging individual gold stocks in the immediate-term, there are just enough lingering momentum stocks among the actively traded golds on our list that has allowed the XAU and HUI indices to probe higher.

With the inflationary commodities running so hot right now, what has kept the XAU from being really explosive on the upside? We've looked at this before, but I believe this lack of explosive upside movement is reflected in the 60-day GS HILMO index, which measures the rate of change in the net new highs among the actively traded gold stocks. The chart below shows 30-day and 60-day GS HILMO, with the green line being the 60-day indicator. It has been declining (albeit at a shallow rate) since February. Now that it is about to meet up with the 30-day HILMO indicator, however, it appears like it may turn up again.

More follows for subscribers, you can buy the May Gold Strategies Review, which includes analysis of over 3 dozen gold stocks ($21) here.

--Clif Droke
clif@clifdroke.com
website, www.clifdroke.com

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