What's wrong with gold and
gold stocks?
The short answer: Nothing!
Contributed by Olaf Sztaba
NA-Marketletter
www.na-marketletter.com
December 9, 2004
In April 2003 we issued a special report about gold and gold
stocks titled: "They still do not believe." Back then
the bull market in gold and gold stocks was already well established.
Even so, one could observe widespread ignorance of this bull
market among media and market participants.
Amazingly, today is no different.
Even though gold is trading above the $450 level and gold stock
indices are close to their yearly highs, disbelief remains intact
and... we are happy about that.
Recently gold has outperformed
gold stocks. It doesn't mean, however, that the bull market in
gold and gold stocks is about to end. In the past there were
similar periods of underperformance of gold stocks in relation
to the yellow metal. Such a phenomenon usually signals an incoming
correction in the price of gold.
In November, gold finally broke
through a super-resistance zone around the $430 level. Since
then the metal has been on the rise, adding another $20 to its
price. Usually when such strong resistance has been taken out,
the pullback towards a broken barrier follows.
A decline in the price of gold
towards the $430 level should not be a surprise to anyone. It
should be viewed rather as a buying opportunity.
Secondly, nervousness among
market participants in regard to gold stocks may be slightly
out of proportion. If we examine a chart of the XAU and
its Relative Strength in relation to gold, the index led the
yellow metal most of the time from roughly 2001 to the end of
2003. In 2004 the situation reversed again, just as it
did three times during this bull market (please see
the lower panel). In all three cases it signalled a correction
and again - a
buying opportunity.
Thirdly, both the XAU and the
HUI are trading close to their previous highs established a year
ago. For the XAU it is the 110 level and in the case of HUI the
resistance is around the $250 level. These types of supply zones
are usually not eliminated all at once. It takes time to surpass
such barriers.
In addition, disbelief
- a condition that is a "must" for every new bull market
in order to be credible and sustainable - still exists. There
are more and more bears and less and less confidence in this
market. They still do not believe!
Finally, trends tend to persist
and from the outset (back in 2000) gold has been in a true trending
market. There is no single piece of evidence showing that an
up-trend that started four years ago is close to its end. The
50- and 200-day moving averages are both trending higher and
the price action is taking place above them. What's more, a price
discrepancy between gold and its 200-day moving average suggests
a correction, exactly what the behaviour of gold stocks would
imply.
The bull market in gold
and gold stocks is strong and intact. Corrections are part of
every bull market and they should be viewed as buying opportunities
rather than emotional exit points.
"They still do not
believe." Do you?
For individual gold stocks
recommendations sign in for a free trial at www.na-marketletter.com.
December 8, 2004
 Contributed by Olaf
Sztaba
Email: osztaba@na-marketletter.com
Website: www.na-marketletter.com
About NA-Marketletter
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321gold Inc
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