In this short update we focus on the long term technical picture for gold and precious metals stocks since the fundamentals have not changed and remain bullish. The technical picture, however, is getting very interesting.
Gold price action in the past half a year can best be characterized (especially after the recent rally) as consolidation. Such a consolidation is reasonable after a huge spike last year into early 2008, where gold exploded from $650 to over $1000 per ounce.
The long term monthly chart is encouraging. There is the clearly evident higher lows pattern, the RSI has bottomed and the MACD histogram is starting to curve higher.
Most importantly the 20-month Exponential Moving Average (EMA) is turning up, reversing a first-time-in-eight-years bearish turn downward. It is very important to see gold close above the 20-month EMA two months in a row; this would give further evidence of a bullish reversal.
The bull market in gold will resume in full force after gold penetrates its downtrend line which is currently at around $930.
Another bullish factor for gold is the renewed investment demand by the StreetTRACKS Gold Shares (GLD). Gold holdings have now reached an all-time-high of 775 tonnes.
On the monthly charts of a Gold Bugs Index ($HUI), highly significant buy signals have been generated. There have been successively higher lows for three months in a row, the RSI has bottomed and started moving higher, the stochastic indicator reversed from a very low level (a rare signal) and the MACD histogram is starting to curve.
These long term reversals in indicators are highly reliable and rarely fail. There is a good probability that 2009 will turn out to be a complete opposite of the brutal 2008 for the precious metal stocks.
As stated several times before, we are starting to accumulate precious metals stocks having low exposure to base metals, with high gold and silver grade deposits, healthy balance sheets and prospects for internal growth.