Gold and Gold Stocks: The Correction Begins
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| Topic: Gold, Gold Mining Companies — October 23rd, 2007
Gold and gold stocks have been doing incredibly well over the last couple of months, but nothing goes up in a straight line, and we believe that a correction in gold and gold stocks is imminent, and yesterdays trading could have signalled the beginning of the pullback
Readers of The Gold Prices Newsletter will know that on August 16th we wrote in an article entitleed “Buying Oppotunity in Gold Stocks” that “A great buying opportunity in gold stocks is rapidly approaching, if it is not already here.” That was the day that most gold stocks hit a bottom, and from there many gold stocks have risen 40% or more.
Then on the 22nd of August, we told our readers that gold stocks were very oversold, as the HUI/Gold ratio was at one of its lowest points in two years, and therefore it was a great buying opportunity.
Those who followed what we were saying are now sitting on some very substantial returns, in a relatively short space of time. However we told our subscribers that gold and gold stocks were preparing to correct roughly a week ago. We changed all of our stocks in our free gold and silver portfolio’s from BUY to HOLD in anticipation of this coming correction.
From the HUI chart above we can see that the correction has begun, and the index has fallen below 400. We feel that the HUI and gold stocks have more to fall, and we could see the HUI going to 360 or lower before the correction finds a bottom and we can continue with the gold bull that we believe is taking gold prices to $1000 and eventually we see no reason why gold prices could not go to $3000/ounce. However for the moment we have locked in some profits and sold some of our gold stocks, whilst maintaining a strong core position that will remain in place throughout the ups and downs of the precious metals bull market.
The chart above clearly shows gold precariously high above its moving averages, and so a correction to at least the 50dma is to be expected. In our opinion one of the most important technical indications at the moment for gold is the RSI (Relative Strength Index). In our opinion this is too high and looking back through the charts of gold in the past, usually when the RSI is this high, gold corrects.
Therefore we are waiting for this correction to play out, which has already begun, and will resume buying gold stocks when they have corrected to a more reasonable price.
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will you buy more slglf when it drops to .05 ?
Comment by Andrew Lenoir — October 23, 2007 @ 2:56 pm
Hello,
I always look forward to your newsletters and have found them to be spot on. I was curious about the term overbought. Another website I frequent claims that the term “overbought” is a term made up by loosers that had gone short instead of long.
Thanks,
Daniel
Comment by Daniel — October 23, 2007 @ 3:15 pm
Andrew, Possible - Have not decided yet.
Comment by Gold Prices — October 23, 2007 @ 4:52 pm
Daniel,
investopedia.com says the following:
1. A situation in which the demand for a certain asset unjustifiably pushes the price of an underlying asset to levels that do not support the fundamentals.
2. In technical analysis, this term describes a situation in which the price of a security has risen to such a degree - usually on high volume - that an oscillator has reached its upper bound. This is generally interpreted as a sign that the price of the asset is becoming overvalued and may experience a pullback.
1. 1. An asset that has experienced sharp upward movements over a very short period of time is often deemed to be overbought. Determining the degree in which an asset is overbought is very subjective and can differ between investors.
2. Technicians use indicators such as the relative strength index, the stochastic oscillator or the money flow index to identify securities that are becoming overbought.
An overbought security is the opposite of one that is oversold.
We have no wish to comment on other web sites but we hope that the above explanation helps.
Comment by Gold Prices — October 23, 2007 @ 4:55 pm
Thanks for the definitions…I agree with the term overbought. The way I look at it, it’s just like a bubble in real estate only without the subprime mess haha…I have been reading your e-letters for a while and watching and you’ve got a great track record. Thanks for all the great information.
Daniel
Comment by Daniel — October 23, 2007 @ 7:42 pm
I WONDER IS IT PRUDENT INVESTMENT DECISION TO SELL GOLD TRYING TO CATCH A SMALL CORRECTION, IN ONE OF THE MOST BULLISH RUNS WE ARE CURRENTLY IN. GOLD HAS FINALLY BROKEN OUT OF ITS SIDEWAYS MOVEMENT, AND YOUR SAYING THAT A CORRECTION IS VERY LIKELY.
PRUDENT ADVISE? I WONDER?
Comment by Augustus — October 24, 2007 @ 3:59 pm
I also wonder about this prudent advice; most analysts are speculating gold to hit over 1000 before the end of the winter. Your article published on kitco.com also states the bullishes aspects of the market, and they far out way any of your reported bear fears. maybe your HUI is hooy?
Comment by Ben — October 24, 2007 @ 8:29 pm
I agree with the above poster. Unfortunately, speculative buys and very strong fundamentals of gold and the dying U.S. dollar combined with high oil prices has overhelmed the Technical analysis foreseeing a correction. The only thing that can drive gold down now is if the Feds doesn’t cut rate which will drive speculators away from gold which should correct to the normal levels. As for stocks itself, we could see a pullback when companies report 3rd quarter results and i suspect the earnings will be terrible. The best time to buy is sometime in November or after 3Q results.
Comment by pho — October 24, 2007 @ 9:32 pm
I’m just glad I didn’t sell my silver or gold. If it drops I take that as an opportunity to purchase more. The dollar looks to be doomed.
Comment by Daniel — October 27, 2007 @ 4:09 pm
I am fairly new to this site, but it ranks as one of my all time favorites. The advice given ( to lighten up because its oversold) etc is given with the disclaimer to do your own due diligence and decide for yourself. I appreciate the tech analysis here , and find that it is very accurate ( T.A. is patterns that repeat throughout time, not an exact science).Buy your gold OR sell your gold OR hold your gold- do what YOU think is prudent , but be thankfull for this free site and nice chart work as additional input to your decision making!! I have been in the gold mkt for 6 years…I buy dips and choose NOT to trade in and out of this bull,but believe me …STRONG BULL=YES!! SHARP & SCARY corrections from oversold= oh yes, at times.This is a REAL NICE break in gold ,HUI and XAU,its ok to BUY and Hold, OR try to trade at this point , there are plenty more buyers that will come in and push it higher with these fundamentals
B-U-T thanks gold-prices.biz for nice charts!!!!!!
Comment by Robert — October 28, 2007 @ 2:16 pm