Gold Market Bottoming; Speculative Stocks Poised for Takeoff

May 6, 1999

It is becoming more and more evident with each passing week that the gold market, along with commodities in general, have seen a bottom and will continue to consolidate or move higher in the weeks and months ahead. Even more impressively, the speculative gold stock sector that we have been watching closely since last October appears ready to launch a new bullish phase which should give the Internets a run for their money.

We will not venture a forecast on the physical gold market at this point—the chart is still a bit amorphous and even the price-to-volume ratio is subject to interpretation. Suffice it to say the 15-month long sideways consolidation pattern continues and until we see a decisive breakout in either direction we will withhold comment. Our main area of focus to support our bullish outlook is the XAU precious metals stock index which has etched out a chart formation strongly suggestive of a reversal—a rounding bottom pattern.

Technical analyst P.Q. Wall, the pioneer of the "bowl theory" of technical analysis and editor of the P.Q. Wall Forecast, highlighted the striking reversal implications of the XAU in a recent newsletter. The XAU price pattern has formed a bowl pattern, which strongly implies a move higher that should roughly follow the side of the bowl. This same pattern can be seen in numerous gold and silver stocks, especially the more speculative ones.

Among the many gold stocks with bullish chart patterns is Aber Resources Ltd. Aber bottomed late last year and has since begun to move higher on increased volume—a bullish sign. Subsequent pullbacks have been on diminished volume, which also points to the upside bias in this stock.

Altai Resources is a gambler's play due to its low liquidity levels. However, an exceedingly bullish development last month points to a bullish trend underway in this stock. Specifically, volume spiked in March during its bottoming phase, only to spike again last month while pushing prices sharply higher. There is obviously a strong interest in Altai, and at only $0.5/share it is an extremely inexpensive play; but keep your eye on the exits as liquidity is very low.

Our old favorite, Argentina Gold, continues its impressive bull run which began last fall. The goldest of the gold stocks, Argentina's tape confirms its strong internal strength. Take a look at a piece of the tape from a recent trading week: $7 on volume of 210,400, $6.75 on volume of 52,900, $6.85 on volume of 409,800, $6.95 on volume of 411,300, $7.1 on volume of 578,800, and $7.25 on volume of 589,300. Note the tendency for higher prices on expanding volume and lower prices on contracting volume—a bullish confirmation. Keep your holdings in this wonderful performer.

A gold stock that has lately come to our attention and is worthy of the consideration of gold bugs everywhere is Latitude Minerals. This stock, which trades on the Vancouver Stock Exchange, has seen a consistently strong performance over the past few years and has proven to be a profitable investment over the past few months in particular. A recent survey of the tape yields the following: $0.4 on volume of 25,500, $0.46 on volume of 89,000, $0.44 on volume of 48,300, $0.48 on volume of 58,500, $0.45 on volume of 34,300, $0.46 on volume of 114,200 and 0.41 on volume of 3,500. As can be seen, this behavior is indicative of underlying buying strength with most of the upside volume going with higher prices and most downside price movement coming on extremely low volume. The tape tells us that Latitude is being accumulated.

Other gold stocks with charts that stand out as being bullish include: Goldcorp Inc., Gulf International, International Pursuit, Jordex Resources, Latingold, Santa Cruz Gold, and TVI Pacific.

Clif Droke is the editor of the three times weekly Momentum Strategies Report newsletter, published since 1997, which covers U.S. equity markets and various stock sectors, natural resources, money supply and bank credit trends, the dollar and the U.S. economy.  The forecasts are made using a unique proprietary blend of analytical methods involving cycles, internal momentum and moving average systems, as well as investor sentiment.  He is also the author of numerous books, including most recently “2014: America’s Date With Destiny.” For more information visit www.clifdroke.com.

Due primarily to the California Gold Rush, San Francisco’s population exploded from 1,000 to 100,000 in only two years.