As we said in our recent portfolio update, we are not recommending any buying at these levels as it is our opinion that gold and gold stocks are overbought and due for a correction.

Gold prices have not yet started to drop, but the technical indications suggest that prices are due for a fall back towards their moving averages in coming weeks. The STO is overbought and in the “SELL” zone, as is the Relative Strength Index. The MACD is yet to give us a negative crossover signal, where the black line breaks down through the red, but this cross is due and when this happens it will give yet more evidence that gold prices are in for a short term drop.

In the past years of this gold bull market, we have often seen gold stocks leading gold prices. For example, gold stocks have sometimes corrected before the metal itself, even if just by a few days and similarly gold stocks have sometimes begun to rally before gold prices have got going.

Therefore the fact that the HUI index has fallen roughly 8% in the last two days of trading, suggests to us that gold stocks may yet again be leading gold down in a correction.

The Relative Strength Index has begun to fall, as has the STO which are both bearish signs. Also if we take a look at the MACD, the black line has turned down, ready to make a downwards turn through the red line, which will give a very bearish signal.

So if you were thinking of buying some gold or gold stocks, we think it would be a good idea to watch and wait for this correction which will present a great buying opportunity. Also if you are sitting on some decent profits and have planned on trading this bull market, it may be a good idea to take some profits at these prices to free up cash to re-invest when prices correct.

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