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« U.S. Could Sell Gold Reserves? | Main | Does the HUI trust Gold? »

Gold Stocks Could Correct In One Week

We feel that gold and gold stocks are in for a sizeable correction in the next week, possible few weeks. We have seen a massive rally in gold stocks, with the HUI rising over 40% from its August lows.

However to us many gold stocks look overbought and we have sold a proportion of our holdings, although we have maintained a significant core position, in anticipation of a correction across the board in precious metals. After this correction, we intend to buy back the shares we sold at lower prices, enabling us to purchase a larger overall position. For example if we sold 1000 shares at $20 this gives us $20,000. If the shares fall to $15, we reinvest our $20,000 and this now buys us over 1333 shares, so giving an increase of 33% on our original position.

We still are very bullish on gold and silver in the longer term, and we see gold making $1000 and silver reaching $20 perhaps sooner than you think and in a few years, we see no reason why gold could not be at $3000 and silver at $100.

As far as the shorter term is concerned though, we are waiting for a short sharp correction in precious metals and their associated stocks. This correction could happen very quickly in the stocks as in the past we have seen the HUI drop 20-25% in periods as short as one week.

Gold Stocks Could Correct In One Week 1

Gold Stocks Could Correct In One Week 2

Gold Stocks Could Correct In One Week 3

This shows that this correction could indeed be over this time next week, let alone beginning! The correction could be very short lived, but it is needed in order to maintain the technical health of gold and gold stocks.

The same applies to silver and silver stocks as they move usually in unison with gold, but with silver being the more volatile commodity. We are looking to make another trade on silver prices, possible via spreadbetting again as we did back on August 20th, which resulted in 100% profit in 30 days.

Trading in and out of the market is not for every investor and we always maintain a significant core position in precious metals. One can simply buy and hold in this market and, provided one is invested for the long term, this should prove to be profitable. Trading the ups and downs of a market does however offer significant profits for those who can successfully call the tops and bottoms.

You can keep updated on our actions in gold by subscribing to The Gold Prices Newsletter free of charge and stay informed with what we think of the silver market and silver stocks by subscribing to The Silver Prices Newsletter again totally free of charge.

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Reader Comments (2)

I too agree (and am waiting for) a better entry point sometime over the next few weeks. But I don't think you should compare the potential, upcoming correction to the may 06, sep 06, jul & aug 06 periods. During these periods, gold (and hence gold stocks) was either in a post-blow-off phase (may 06 right after gold skyrocketed to $720) or a consolidation phase (the other three) and hence was weak. If you look at the HUI chart since 2002, it shows a fairly obvious pattern of going up towards the latter part of the year until it reached a high, then corrected severely followed by a consolidation phase that last for at least 12 months, then pattern repeated. If this time around it's the same, I believe a better comparison is 4Q2006 (-13%) and 4Q2003 (-10%) during october.

October 15, 2007 | Unregistered Commenterlewman

Wow. Good call. The price of gold is falling fast at the moment.

October 21, 2007 | Unregistered Commenterpho

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