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Elimination Process at WorkContributed by Olaf Sztaba INTRODUCTORY SUMMARY: In our latest gold comment we concluded: "New up-leg in gold and gold stocks is now underway." We also said that gold and gold stocks are somewhat ahead of themselves and a short-term pullback is highly likely. Indeed, the ongoing jitters around the 200-day moving average aims to confuse and disappoint. But don't let these foggy days get you down the rally in gold and gold stocks is now underway. GOLD NOW: The recent behaviour of gold is bothering many investors. It should not. The bull market is still intact. The yellow metal, after a brief rally above the $410 mark, backed off. It is currently trading above its 50- and 200-day moving averages. The shorter-term line (50-day MA) continues trending upward, while the longer line (200-day MA) cannot make up its mind. These technical developments show an elimination process at work.
Gold doesn't like company. It will do whatever it takes to eliminate the greatest number of investors before it starts rallying again. GOLD STOCKS: Lately, the gold sector has been behaving rather differently from normal. The main gold stock indices continue trading above their 50- and 200-day moving averages. This has to stay that way. In order to be in full rally mode, the HUI and the XAU have to continue holding above the 200-day moving averages at once, otherwise the "elimination process" will continue.
Expectations arose about the
huge rally starting in September. It is not going to play out
as majority expects. It never does. Gold may do something unexpected;
for example, start rallying and getting crowds aboard, only later
to tumble one more time. A run-away rally is also possible when
latecomers have a hard time joining the game of chasing rising
prices. Gold stocks are leading gold. It must stay that way. Gold and gold indices must stay above their 200-day moving averages. Once that is done, the bull market should go ahead in full force. THE INTERMEDIATE TERM: Two major gold stocks indices, the HUI and the XAU, are just trading above the falling 40-week moving averages. This average must start turning around. The time-window for such a move is open now because the September-December period is gold-rally friendly. FINAL SUMMARY: This is a two-layer bull market (the best of all) when secular and cyclical trends are both bullish. Thus, any consolidation should be viewed as a buying opportunity. For individual gold stocks recommendations, sign in for a free trial at www.na-marketletter.com. September 24,
2004 About NA-Marketletter 321gold Inc |
