A number of distractions appeared this week, which took our minds off precious metals momentarily; the shock of England beating Australia in the Rugby World Cup left us with sore throats and slightly fatter wallets.

Tuesday:

Back to business, Gold at the best of times is a bit of a tease especially now as the bulls roar for gold to hit the moon and she dallies leaving us to think will she or wont she? Most of the meaningful action would appear to take place in New York as observers will note that regardless of what gold does over night in Hong Kong, Sydney and London she steps back into line as the New York open comes into sight. It appears to us that the close in New York is a very powerful influence on the following opening in New York regardless of what gold does on other exchanges. Today (Tuesday) we can see gold traded as low as $727 before New York opened and within an hour had retraced her steps to trade at $736 as we write. We don’t know how to use this information as we do not trade by the hour but maybe there is a trader out there who uses this sort of behavioural pattern for financial gain.

We still have cash on the sidelines and are not prepared to buy at the moment. Why? Because we think that the conditions are such that we would be buying into a mini peak. Over the longer term it wont make a lot of difference as we believe that gold is going very much higher and we are comfortable with our core holdings. We have taken some profits off the table, as our regular readers are aware so focusing on a suitable re-entry point is foremost in our minds.

Wednesday:

So first up is the chart of the US Dollar, which should come as no surprise to anyone that it has made a small recovery to move up to 78.46 on the US Dollar Index. Any recovery in the dollar has usually meant a cap on gold’s progress. This inverse relationship will not last forever but it has held true in recent times.

Now take look at gold itself and notice just how far the price of gold is above its own 200dma, some seventy dollars or 10.44%. Historically when gold has been this far ahead it has usually corrected and we anticipate a correction to take place shortly. We could be wrong of course and be left at this station with our little pile of cash still homeless. The technical indicators have started to correct and are now heading south although it has to be said, ever so slightly.

The chart for the HUI has recently had a double top and we were expecting some profit taking however the stocks are now testing previous highs. Note that the last four peaks have been followed by severe pullbacks, the question we wrestle with is this the fifth pullback before us or will gold finally surge to a much higher position.

We can only conclude that we will wait and observe the action before buying stocks. We would agree however that the downside is fairly limited and that this sector of the market will move on to higher ground in the near term so hang on in there and watch as we sweat!

Please feel free to add your comments to this article we welcome the debate.

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Have a good one.