Both charts are showing classic breakouts from bull wedge patterns. Another few days of consolidation in advance of the jobs report is probably just what the "breakout doctor" ordered, at this point in price and time.
Here is a ratio chart of GDXJ versus gold bullion.
Note the position of the "King Daddy" TRIX indicator. It's flashing a massive buy signal for GDXJ.
If you look at ratio charts of GDXJ against silver and against the Dow, you will see a similar set-up. Gold junior stocks are probably about to enter a period of substantial outperformance against every asset class.
I like to see the general commodity indices rising nicely when junior gold stocks begin to rally. Here's the CRB general commodity index chart.
If you look at the technical indicators and oscillators you can see powerful buy signals in play.
Note the lows at 292.39, 293.50, and 298.22, and the highs at 324.99 and 326.02. A small rally has already started from 298.22 and I think there's a good chance that the CRB price bursts out of this congestion zone on the upside.
Individual commodities are showing similar action, which is a very bullish sign. Natural gas is one such commodity, and it is pushing into horizontal resistance in the $2.23 area.
It's very important not to get carried away with calling a turn for gold stocks or commodities. Amateur investors tend to think "space helmet on" means "Place huge buy orders now, because the price of the asset is about to blast higher!" That's not how the professional investor thinks.
To the professional investor, the term "space helmets on" means that positions accumulated into severe price weakness may be about to experience a period of tremendous price strength. That's really all it means.
The professional is prepared to endure much more price weakness if the "blast off alert" goes awry. The professional will continue to accumulate while the amateur becomes demoralized.
Trade smaller than you know is rational, so you can continue to accumulate alongside professional investors when there are problems on the "launch pad" of your stock and commodity rocket ships.
If you place a tremendous amount of capital in any one price zone, you run an even more tremendous risk of finding yourself deeply underwater. You'll soon be cursing the asset instead of continuing steady accumulation.
This is a good time to add light short positions in assets like natural gas. The rally gives natural gas accumulators a breath of fresh air, and fresh short positions give you added emotional and financial firepower to manage your "personal surprise zone".
If the price of "ole natty" takes out the bottom at $1.90, you'll be very glad to be holding those short positions while continuing your overall accumulation of this mighty asset.
While all gold stock accumulators should own bullion, be very careful about falling into the same trap that "Elmer Fudd Public Investor" fell into when the general equity market entered his personal surprise zone in 2008-2009.
The "growth with safety" play in the gold community is a move out of gold stocks and into bullion. When the public moved out the stock market in 2008-2009, and into low-yield bonds, the stock market promptly rose almost 100% in eighteen months. Many Dow stocks tripled and quadrupled. The public will never recover what their "growth with safety" play cost them.
I believe a very similar situation is at hand for the gold community. Gold stocks appear set to dramatically outperform bullion, yet many investors are looking to move into bullion to avoid further drawdowns in gold stocks.
Enormous drawdowns in gold stocks are just part of this game, and in my professional opinion, it is only lottery winners who experience tiny drawdowns.
If the heat in the gold stocks kitchen is too high, I would consider buying the Dow rather than bullion. As the dollar comes under more and more pressure, institutional money managers are likely to buy the general stock market and push it dramatically higher.
The problem with that play is that the Dow is quite high right now. Selling gold stocks low and buying the Dow high is not how to build wealth. It's a tactic that could impoverish the investor.
The best time to enter the Dow is after a crash. May to October is the weak price season for the Dow, and August to October is what I term, "crash season". Wait for the Dow and its component stocks to fall hard before moving any capital from gold stocks into it.
If you are experiencing 50% drawdowns or more on gold stocks you should understand that such action is normal in good times. In this super-crisis, those drawdowns should be considered modest or even tiny.
Try to step "outside the drawdown box" and focus on accumulation, patience, and the mind-boggling size of this crisis.
Gold stocks are not short-term bonds. They are bucking broncos, and riders need to understand that wild drawdowns are not the exception, but the rule.
At this point in time, it is highly probable that junior gold stocks are set to dramatically outperform all other asset classes. If that happens, great! If not, well, that's why you carry some short positions and some bullion!
Special Offer For Gold-Eagle Readers: Send me an email to firstname.lastname@example.org and I'll send you my "Reader's Choice" report. I maintain a database of hundreds of junior resource stocks followed by gold community investors. Which ten look the best right now? I'll show you!
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Stewart Thomson is no longer an investment advisor. The information provided by Stewart and Graceland Updates is for general information purposes only. Before taking any action on any investment, it is imperative that you consult with multiple properly licensed, experienced and qualifed investment advisors and get numerous opinions before taking any action. Your minimum risk on any investment in the world is: 100% loss of all your money. You may be taking or preparing to take leveraged positions in investments and not know it, exposing yourself to unlimited risks. This is highly concerning if you are an investor in any derivatives products. There is an approx $700 trillion OTC Derivatives Iceberg with a tiny portion written off officially. The bottom line:
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