Friday, July 13, 2007

Good Times for Gold Investors.

Gold stocks have performed amazingly well over the past few weeks, and I'm glad to see that Gold Bugs are finally making some money. I have been trying to build a bullish argument for gold ever since I started my blog, and if you read my previous posts, I hope you will be able to see that.

However, I am not always bullish on gold. There are times where I will build a bearish case for gold, and I will justify it to the best of my ability. Right now, though, is not one of those times. Far from it. To me, the charts are saying that Gold stocks have a long way to run, and I have a lot of evidence to back this up.

Yesterday, I posted a powerful piece of evidence, which was the giant triangle on the XAU/GLD ratio chart. Today, I'll post another significant milestone.

The chart below is a weekly chart of the Euro. The Euro and Gold tend to trend in the same direction, so anything positive on the Euro chart is positive for Gold. If you glance at the chart below, you can see that the Euro is trading higher than ever before. It has broken out of a double top formation, and this is, on a long term basis, very bullish.

One thing to keep in mind is that this is a long-term signal. It means that Gold will likely be higher several months from now, but does not necessarily mean that Gold will go up tomorrow. In fact, on the very short term, there are some developments that I find disconcerting.

Firstly, the USD has been getting killed over the past few weeks, and is deeply oversold. The USD also has not broken long-term support, although, I know, it eventually will. What this means is that the USD could be due for another dead cat bounce.

Secondly, I would like to see Gold Stocks relieve some of their overbought condition before I'd invest any more of my money. This should allow them to rest up, and get ready for another wave higher, which is what the weekly charts are saying.

So, the bottom line is that Gold Stocks are looking excellent for the long-term, but vulnerable in the short-term.

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