GOLD HUI - Major break-out within a month

GOLD HUI - Major break-out within a month?

Eric Hommelberg
September 09, 2006

On September 03 we send out an alert to our members suggesting the HUI could be on the verge of a major break-out since its 353 resistance level was being challenged for the 4th time. On September 06 the HUI slashed the 353 with ease indeed and rocketed all the way up to 369. Unfortunately the HUI break-out couldn't be confirmed by gold and down we went thereby classifying the HUI break-out as a false one. So were to go from here? What can we expect and what should be watched closely coming days/weeks?

Well, lets have a peek first at the HUI chart itself. It's obvious that the spike above 353 was a false break-out so a new triangle formation has been formed which should be taken out first before a major 'BUY' could be generated.

Clearly visible is the formation of the new A-B triangle. This formation however won't exist for a long period of time since the A-B lines will be crossing within a month. The HUI finds support at current levels at 337 (50 dma and B-line). If these support levels fail then the HUI will find support at its 200 dma (320).. So the 320-340 area could be considered as a strong support area.

Whether or not the HUI will manage to break this formation to the upside anytime soon depends on the gold price. The sudden drop in the gold price scared many investors out of the gold arena past days but things aren't that bad as they seem to be. Gold just didn't manage to break out of its triangle formation and is heading down now to its previous summer lows in the low $600 area, see chart below:

Despite the fact the $22 drop in just two trading sessions isn't exactly what the average gold investor is dreaming of it isn't most likely the start of a major correction either. Why not? Simple, all major corrections of the past 4 years started off in the face of severe overbought conditions. In other words, gold never started a major correction while witnessing neutral technicals. Therefore the odds are this sudden drop has almost run its course. Gold finds support right now at previous summer lows in the low $600's. When these support levels fail gold will find support at its 200 dma ($590). Yes, the downside risk is only a mere $20 from here on while the gold's price objective after breaking the triangle formation to the upside exceeds $800!

So again gold failed to break out to the upside of its triangle formation and we have to wait patiently for the next attempt.. When that will be is any-ones guess but the chart suggests it will be within a month from now.

Summary:

HUI break-out above 353 was a false one since it couldn't be confirmed by gold
HUI finds strong support in the 320-340 area
HUI must break its newly formed triangle formation to the upside before a new major "BUY' could be generated (currently a close above 369 is required)
Gold failed to break-out of its triangle formation and fell back to the lower side ..
Gold finds strong support in the $590 - $600 area
Current formation will be taken out within a month.
If gold succeeds in breaking out to the upside then it will mark the end of the down-trend which started in May.
The price objective for gold once broken out to the upside exceeds $800+

Eric Hommelberg

The Gold Drivers Report
The Gold Discovery Letter

Email: ehommelberg@golddrivers.com
Web-site: www.golddrivers.com

September 11, 2006

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