Last Updated :
23 December 2009 at 10:15 IST
How gold stocks reached an overbought at 516
By Bob Hoye
The expected consolidation is working out, but the initial break was too fast. It took only six days to generate the daily Capitulation reading.
On any such signal the low can take a week and today's decline continues the correction. It is worth noting that the rally in the DX is becoming impressive.
Gold stocks (HUI) reached an overbought at 516 at the beginning of the month and have been expected to decline into January. Support could be found at the 390 level.
Gold's real price, as represented by our Gold/Commodities Index (GCI) set an uptrend in September, which began to anticipate a resumption of credit concerns. In late November it reached 392 when the Dubai World default was reported. It turns out that the rise had been anticipating a specific failure, rather than a general one.
After reaching 400 with the Dubai thing, the G/C declined to 373 last Thursday. It is stabilizing and if it resumes the uptrend it would be anticipating the next "problem".
Considering the direction of the dollar, the next "problem" could be more widespread.
Another confirming indicator would be the gold/silver ratio advancing through 65.
In the meantime, senior golds as well as smaller-cap producers can decline further, presenting another buying opportunity for the sector.
Gold's real price will continue its cyclical bull market, which is indicating the usual postbubble increase in investment demand. Producers are recognizing this and will have to become much more aggressive in building reserves. So far this has been mainly done through acquisition.
Legendary gold rushes have occurred close to the bottom of a great depression – California in 1849 and the Klondike in 1897 are examples.
It is worth emphasizing that the rising real price enhances mining profitability as well as valuations on gold deposits. Senior producers could soon cause a gold rush in the exploration side.
We have been expecting that this would become outstanding in 2010.
Courtesy: www.institutionaladvisors.com
MCX SILVER MINI 999 31 August 2012
contract was trading at
Rs 57069 , up Rs. 339 . What's your view on it?
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