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Golds are Ready to Follow Energy StocksContributed by Olaf Sztaba In our March Gold Comment we said that a seven-month rally in Gold and Gold stocks was "too much, too fast" and a healthy correction was needed. A technical objective for this pause was the area close to the 200-day moving average. Majority of Gold stocks fulfilled this target at the end of April. As a result, we concluded (Gold Comment - May 2, 2008) that the worst was over and a calming period should follow. Indeed, Gold stocks have spent most of May and June consolidating and building a launching pad for the next up-leg. This slow process usually plays out in the summer months, only to resolve into a full-fledged rally as the fall season approaches. However, both technical and cyclical evidence suggest that the Gold sector may complete its corrective period earlier this year. First, Gold and Gold stocks have already completed their distance objective for this pullback. Second, strong gains in Energy stocks may prompt many investors to shift some funds toward Gold stocks, which currently offer a more attractive risk-reward ratio. Finally, earlier this year many big-cap stocks (Barrick Gold, Goldcorp, Agnico-Eagle, etc.) had major breakouts from their lengthy consolidation patterns, so the recent minor weakness should be followed by another strong step up. Gold and Gold stocks have already reached their objective for this correction. The sector has also spent enough time stabilizing and building the foundations for the next up-leg. There is potential for a substantial rise that should start in late-June and accelerate toward the end of this year.
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Jun 17 , 2008