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« A Bet Against The Banks | Main | Even New Yorkers Say No To USD »
Wednesday
Feb132008

Gold: The HUI does not want to play!

Gold has been holding up really well of late despite the myriad on incalculable variables that surround it. However the stocks appear to be sending us a slightly different message.

Take a quick look at the chart for gold and you can that the technical indicators are heading south although thus far gold is showing considerable strength.

Gold Chart 13 Feb 08


Now look at the chart below for the HUI and we can see that the HUI has tried three times to go higher and failed despite golds success and the technical indicators are in negative territory.

The Hui 13 feb 08

As we see it the HUI is telling that it does not want to go higher and is anticipating a lower gold in the near term. This is a very hard call to make as the variables are numerous, such as the lack of buying interest in India, the possibility of more central bank sales, the drop in production in South Africa and the effect of the mickey mouse paper chase that haunts the financial sector. However we all have to make decisions and we decided to reduce our exposure in gold stocks recently as regular readers of The Gold Prices Newsletter will be aware. Was it the right move you wonder, well we wont know for a few more weeks yet. But do beware of a pull back they do tend to come hard and fast, as we have seen in gold as well as silver in the past. If we were wrong we will just have to wait until a suitable entry point presents itself.

These are our thoughts for today, if you have an opinion that you would like to voice then add your comments to this post.

Have a good one.

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Reader Comments (10)

Has anyone noticed the slanted head-and-shoulders top forming on the gold chart? If gold closes much below $900, we could see $850 gold in the next few weeks. Or not, but it's something to keep in mind.

February 13, 2008 | Unregistered CommenterDaniel R

Update on earlier comment: I'll probably be in the "or not" camp for about 2 more weeks.

February 13, 2008 | Unregistered CommenterDaniel R

As a new subscriber and new in commodities investing, at this juncture, what are your thoughts respective to people holding gold and silver ETFs? Thanks!

February 13, 2008 | Unregistered CommenterGary C

Its not an easy call to make as these are tricky times, but it does make the blood flow a little faster!

February 13, 2008 | Unregistered CommenterGold Prices

To me it looks like we are just taking a pause. Volume is slowing down a bit and we're re-tracing our steps up and down similar to the action back in November to December.

I don't see any significant downside pressure yet that would indicate a drop to $850 within the next month. I think we can still move up through mid-April, and I anticipate another push up or two before the summer.

There are also a number of other political factors stirring around the world that may cause people to push up gold as well.

Gary C - one thing to note about gold and silver ETFs - if you are planning on holding long-term the capital gains are taxed as collectibles (if you are in USA, because IRS considers it the same as buying actual gold bullion).

This means you are taxed at 28% rather than 15% if you hold over a year. That's why I personally prefer to stick with mining companies over ETF's.

February 13, 2008 | Unregistered Commenterjgr

The article on the HUI is useful--it tends to echo Adam Hamilton's very developed analyses appearing on Kitco.com and lemetropolecafe.com . However, I recommend that we all look at Mr. Saville's recent essay on Kitco.com. He demonstrates the limitation of projecting PM stock performance on the HUI alone, and takes into account a number of non-HUI PM companies. His conclusions and hypotheses are well worth a read.

It remains ghastly that my PM portfolio is down at least 30 % since April 3, 2007, despite the fact that Au prices have climbed magnificently during this time--especially relative to the U.S. dollar, admittedly, but also relative to a lot of other currencies. The POG rise has been greater than the rise of exploration and mining costs. So... it's all mysterious, and heart-breaking for a lot of investors, big and especially small. It just does not seem to make sense, and so seems unfair. Thanks for the Gold Letter essay on the HUI, though. Just confirms a lot of discouraging news! Breton B.

February 13, 2008 | Unregistered CommenterNeil Bishop

How about the good news?:) last November HUI looked a bit like this (sideways in November)and in December it only lasted 3 slam down days until it hit its 200day m.a. and then shot up from $375 to $475.ALSO ,look back as far as you can go and whenever the XAU /Gold ratio is at or below .20...a sizeable rally occurs , and we are there now ( this week). While A drop in the gold price would relieve this,it wouldn't if the HUI and XAU fell with it. I think a large impulse wave up is near...but maybe a quick slam down to 200day m.a. first?? Again, thanks to this site for posting the signs of the indicators above and warranting caution. I was hoping for an upside triangle break now, but 'hope' alone can make you broke! Happy trading

February 13, 2008 | Unregistered CommenterRobert

I agree with JGR in that I think stocks will be heading up before they head down, although I think that we'll see $850 or lower by the summer (as I'll be buying). The $HUI isn't telling me much, since its formation isn't particularly bullish, although the trendline since August is still in force. However, the $XAU (which tracks the larger stocks, I believe) is showing what looks to me like a symmetrical triangle, and it looks like breakout time is near (probably within a few days). I just hope it doesn't break to the downside.

This morning I bought some PAAS stock as a short term trade. It also looks close to completing a symmetrical triangle, which I hope will break to the upside. With the broad market rallying, I don't expect downside breakouts anytime soon.

February 13, 2008 | Unregistered CommenterDaniel R

In response to Neil Bishop ( in hopes of instilling a little something positive). Down 30% is a sad reality. I looked up many gold stocks that I trade and see that maybe your hope is in the theory that the large stocks with good earnings run first(NOW), and more speculatives and juniors run last. It happened to me in the 2003 run. for ex: KGC is up about 50% from april 2007..GG is up about 30% , AEM almost 100%, randgold(GOLD) is up 100%. so I assume maybe you are in Juniors, which do tend to run they last. In fact, I trade larger ones first, and juniors last, and then GET OUT...juniors run well ,and they can double!!!...but signals the end and a correction. so maybe CDE ,azk, ozn, and others will run soon? I own a few and hope so too. best wishes.

February 13, 2008 | Unregistered CommenterRobert

I really think it is naive to base market judgement on curves or shapes forming like " man with a hat on his shoulders" or some such silliness. Read the newspapers and websights. You will find Canada, for one has banks that have collectively lost 300 billion dollars (they call these "writedowns")in the last two quarters due to defaults of Asset Backed Commercial paper which is a consolidation of debt instruments many of which include sub-prime mortgages from the U.S.A. We all know how that scenario has ruined at least one bank in England (taken over by the government using tax-payers' money). One source notes a 300 Billion dollar loss is a third of Canada's productivity for a year!! Is it any wonder that investors are extremely nervous right now? Then there are the problems in France and Germany. If anyone thinks spreading their risk is a good plan then think again. The entire global money making machine is starting to sputter. Gold seems like the most secure bet. But think of it as a security, not an investment. A climb in gold prices usually indicates a DROP in buying power of currencies. The numbers may look fine, but keep an eye on how much money it takes to purchase even the simplest commodity (petrol, gasoline) and you will see inflation is the reason that gold is advancing. Therefore if you purchase gold don't expect it to return profits, just expect your wealth to be protected. G. Novik, Vancouver

February 24, 2008 | Unregistered CommenterGreg Novik

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