first majestic silver

Strap Yourselves In - This Is Going To Be Huge...

Technical Analyst & Author
October 7, 2010

We are on the point of a major breakout by Precious Metals stocks that is expected to lead to a powerful rally. The reason that the rally will be powerful is that stocks have been held in restraint since late last year by a zone of very strong resistance in the vicinity of the 2008 highs. This resistance is on the point of being overcome and when it is the last argument that bears are using to justify their position will crumble - namely that of the non-confirmation of gold's continuing new highs by stocks - and they will be forced to cover or face annihilation. This covering should give added fuel to the accelerating rally.

The concern that gold and silver are heavily overbought is of course understandable. However, some of the biggest rallies in markets have commenced with the market breaking out in an overbought state and then running an overbought condition for a long time as it continued higher, with all those who missed the boat waiting for a sizeable reaction that never happens. We are well aware that gold and silver are now extremely overbought on a short-term basis and thus prone to a sharp but relatively shallow “air pocket” reaction which should be bought aggressively, as any such reaction, although unnerving, is likely to be short-lived.

As we look at this 4-year chart for the HUI index, we can appreciate that the big gains lie right ahead of us for the market has barely broken out yet, and the blue arrow shows the kind of advance we can look forward to if it, and the XAU index, break out to clear new highs shortly. So despite the gains of recent weeks, the lion's share of the expected major advance lies immediately ahead of us.

Many investors have been vexed by the underperformance of PM stock relative to the metals. As we have seen on the HUI index chart, conditions are ripe for stocks to surge now. With regard to the possibility that stocks will soon outperform the metals, the chart for the HUI index over gold certainly makes for interesting viewing at this time. On a chart for this ratio going back 18 months we can see that it has been converging within a Symmetrical Triangle for over a year now and as it is approaching the apex of this Triangle it MUST break out soon. For various reasons it is expected to break out upside, not least of which is the fact that stocks have a marked tendency to follow gold. If it does and gold continues to ascend as expected, it is obvious that it is perfectly reasonable to expect a dynamic and substantial uptrend in PM stocks.

What about the possibility of the stockmarket crashing or going into severe decline and dragging the PM sector down with it? That used to be a concern of ours, but with the QE (Quantitative Easing) pumps running full blast, it doesn't look like we need to worry about that anymore. On the contrary the prospect of endless rounds of competitive devaluation and generous helpings of QE should keep things humming along nicely, with the bill being pushed onto the little guy later in the form of robust inflation.

We would like to end this article by giving thanks on behalf of the gold community to the gold-friendly geniuses at the US Federal Reserve, US Treasury and the government itself, whose imaginative and spirited bailouts, money creation and monetization have made possible an accelerating bullmarket in gold and silver and Precious Metals stocks. We salute you.

If you are interested in joining the Precious Metals sector party before it gets into full swing, come on over to clivemaund.com where you will find a smorgasbord of large cap, mid-cap and junior PM stocks, plus Call options in the big stocks, all waiting for you to make your selection. This is going to be one wild party - one of the best of the decade - and we don't plan on missing out - nor should you.

Clive Maund, Diploma Technical Analysis
[email protected]
www.clivemaund.com

Copiapo, Chile, 3 October 2010

Clive Maund

Clive P. Maund’s interest in markets started when, as an aimless youth searching for direction in his mid-20’s, he inherited some money. Unfortunately it was not enough to live a utopian lifestyle as a playboy or retire very young. Therefore on the advice of his brother, he bought a load of British Petroleum stock, which promptly went up 20% in the space of a few weeks. Clive sold them at the top…which really fired his imagination. The prospect of being able to buy securities and sell them later at a higher price, and make money for doing little or no work was most attractive – and so the quest began, especially as he had been further stoked up by watching from the sidelines with a mixture of fascination and envy as fortunes were made in the roaring gold and silver bull market of the late 70’s.

Clive furthered his education in Technical Analysis or charting by ordering various good books from the US and by applying what he learned at work on an everyday basis. He also obtained the UK Society of Technical Analysts’ Diploma.

The years following 2005 saw the boom phase of the Gold and Silver bull market, until they peaked in late 2011. While there is ongoing debate about whether that was the final high, it is not believed to be because of the continuing global debasement of fiat currency. The bear market since 2011 is viewed as being very similar to the 2-year reaction in the mid-70’s, which was preceded by a powerful advance and was followed by a gigantic parabolic price ramp. Moreover, Precious Metals should come back into their own when the various asset bubbles elsewhere burst, which looks set to happen anytime soon.

Visit Clive at his website: CliveMaund.com


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