Friday, April 20, 2007

Bullish on gold, gold shares

The prognosis for gold bullion and gold mining shares is bullish, according to two reports from market watchers, The Aden Sisters, and Financial Sense contributor Martin Goldberg.

Mary Anne and Pamela Aden are telling investors to "Keep Focused" on the major long-term trend for gold, which is up. Silver is also very strong, and rising against major currencies such as the euro. The Adens currently see a bullish pattern in all the precious metals.

Marting Goldberg, writing in Thursday's FSO Market Wrap-Up, wonders if the Amex Gold Bugs Index (HUI) will break through the important 370 level to the upside.

While the index failed to do so last November during a similar trading range pattern, Goldberg feels that this time the technical indicators are better aligned for an upward move through 370. However, watch out for that overbought signal, which does present the risk of another correction.

One more point from Goldberg's article: he notes that among the less-than-bullish signals for HUI is the fact that "gold stocks are tracking all stocks".

He notes that price movement in the HUI index is lately much in line with that of the S&P mid cap ETF, and is worried over the possibility that they are both driven by similar forces (liquidity induced rallies/declines).

This point is also taken up by Greg Silberman in his recent article, "All Hands on Deck - Gold Bull Run Ahead!". While Silberman is obviously bullish on gold and gold shares, he also points out the worrying correlation between resource shares and the overall stock market.

What has bothered me most about the rise in Gold and Energy (GE) stocks is the close correlation with the Stock Market. Instead of counter-cyclical hedges GE Stocks are behaving like high Beta stocks (as we found out in late February).

Therefore, it stands to reason that if increased liquidity is driving GE’s and other asset prices higher, a decrease in liquidity would do the reverse. How would we see a contraction in liquidity? I’d say we’d see it in the US Dollar.

So while the longer term trend for gold and precious metals looks bullish, we should also examine the possible stumbling blocks that could cause near-term and intermediate-term corrections in gold and gold shares.

Remember, the views represented here are the opinions of their authors. Treat this material as an educational aid, and don't count on any of it as direct investment advice. You alone are responsible for your investment decisions and due dilligence in investment research.

Having said that, enjoy the articles.