Sunday, September 16, 2007

Stock Update 16 September 2007 (GOLD)

No changes to the indexes. They are neutral and I continue to hold my 50% equity/25% Euro/25% USD positions

The markets are caught like a "deer in the headlights"..... a term used to describe a situation in which they do not know which way to go. On the one hand the daily charts are positive...but on the other hand the weekly charts are negative. Price action has gone nowhere and everyone is waiting on the FED and their interest rate decision on Tuesday.

My guess is the market has already priced in a 1/4% rate reduction. If they go 1/2% you'll see a rally, 1/4% neutral choppy trading, and if no change to the rates look for a stock market correction of some significance.

Bonds look good here; will post more on this at a later date. USD looks like crap; other currencies fine. BUT.........USD oversold so expect a short term oversold bounce.

I want to include a couple charts of gold charts as I think we may be on the verge of a significant price rise in both the physical metal and the stocks. It is not normally part of the provident fund but there is the option to purchase precious metals in the "C" account or outside the provident fund so I thought I would share my thoughts.

I think we are on the verge of a significant increase in price as the charts below show (click on the charts to enlarge them):

First is the HUI (AMEX Gold Bugs Index); a commonly traded index of unhedged gold stocks on the AMEX exchange:

Note the consolidation pattern for the past 1 1/2 years. A breakout above the upper red line will be a very strong buy indication with a potential for 60-80% upside appreciation (see next chart as to why).

Next is the same index plotted since 1998:

Note that since the bull market in PM began in 2001 there have been 4 significant areas of "consolidation" (marked in red lines). While the shape of these consolidations have been somewhat different, the key is upon breakout each upward thrust was significant.

I think we may be there again.

Last chart is a different index I monitor, the S&P/TSX Global Gold Index. It is more broad based than the HUI and gives a more global view:

My notes are on the chart. Bottom line is the CCI has broken out and the index to gold ratio is below 0.45 and almost crossing the EMA(20). This is a rare event (indicating an extremely oversold condition) and in the past has precluded spectacular price appreciation over the next 6 months. The series of lower lows on this chart would have to be broken to the upside to give me further confidence we are on the start of a significant price appreciation in Precious Metals.

I have taken an initial position in my personal trading account in Precious Metals based upon these charts. A breakout on the HUI will lead me to purchase much, much more.

No recommendations, just what I am doing and why for your consideration.



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