Gold, the HUI and XAU
An analysis of the immediate outlook for gold and gold stocks
While I was chuckling away to myself and rubbing my hands with glee watching my gold stocks go up on Friday, I noticed a flurry of incoming mails from people who've seen what they suspect is a top forming in the HUI and XAU stock indices. A number of people were verging on panic and some did panic - and sold out.
It seems clear to me that many of these people formed a judgement on the basis of their interpretation of the patterns in these indices, without reference to bullion itself, and, with the memory of the vicious selloff in the summer still fresh in the minds of many, some jumped ship. Their reverse logic leads them to believe that gold will eventually be dragged down by falling gold share indices. It is gold that is the foundation of these indices, not the other way round.
Let's now quickly review the charts for gold itself, the HUI goldBUGS (basket of unhedged gold stocks) index, and the Philadelphia XAU gold and silver index, which includes hedged companies, to see how things are shaping up.
Starting with gold itself, we see an entirely positive picture; in December gold blasted decisively through the "Maginot Line", the great wall of resistance between $320 and $340 that had stood in its way for several years. This resistance zone, having been cleared by a significant margin, will now function as equally powerful support on dips. Following this immensely important breakout, gold has been consolidating in a most satisfactory manner and rebuilding power for continued advance. We can already see the price starting to be shepherded higher by the great parabolic arc uptrend, which should soon result in a vigorous advance as the shorts come under ever increasing pressure. Remaining shorts in this market will soon be a truly desperate situation. Most people do not realize just what an unenviable position they are in - after all, they are hardly going to go and stand on a rooftop with a megaphone telling the world. As Harry Schulz (I think it was he) said the other day - "When you fail to make a repayment on a car, they don't come and repossess it the next day". Similarly, it will take time for the consequences of the shorts' predicament to become apparent. The past couple of weeks have seen the re-emergence of a motley band of charlatans and wave crackpots, talking gold down. The only reason they attract an audience is because most people don't really know what's going on, and because there is still a serious lack of belief in this gold bull market, which is, of course, very bullish. My reading of the gold chart is that it is ready to move higher in a big way, with the ever-present possibility of a vertical spike caused by massive panic short covering. My immediate target for such a spike, should it occur, is about $420.
Moving on now to the chart for the HUI goldBUGS index, we see that the index is now being encouraged by the parabolic arc uptrend to advance and take out the high of last June. I believe that when this happens it will be of great psychological importance to the gold share market and that it will likely result in a spectacular advance in gold stocks across the board.
The XAU gold and silver index, although naturally not as bullish as the HUI index, also looks set to advance swiftly and take out its high of last June. The steep parabolic arc uptrend shown on the XAU implies that this index may play catchup. Towards the top of this arc I would expect this index to "hop sideways" out of it, as it will then be too steep. This will not be bearish, we will then have to simply look for another pattern.
To conclude, I expect to see a very substantial rise in gold very soon, and a concomitant big rise in gold stocks.
Clive Maund
email: goldstocks@cox.net
13 January 2003
Clive Maund, Diploma Technical Analysis, no responsibility can be accepted for losses that may result as a consequence of trading on the basis of this analysis.
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