Graceland Updates 4am-7am
July 24, 2012
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While gold and silver bullion are important holdings to many members of the gold community, it is the gold stocks sector that is the "first love" of most investors.
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Mining companies offer investors the opportunity to purchase a stake in real gold in the ground, at prices that are essentially far below the current market price of gold bullion.
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The million dollar question is not whether gold stocks enable the investor to purchase gold for far less than $1600 an ounce, but whether that gold can be sold at a higher price at a later point in time.
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As good as gold stock investors may be at buying a stake in gold reserves that can be produced at a cost that is very low, they can only realize a profit if the price of their shares increase.
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So, are gold share prices now set to rise or fall? Please click here now. You are looking at the daily chart for GDX. There's an epic "clash of the titans" battle underway.
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In one "technical corner" of the fight ring, there is a head and shoulders top continuation pattern, with bearish implications.
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The price target of that pattern is the $36-$37 area.
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In a fight, each opponent seeks to exploit the weaknesses of their opponent. Please note the big volume bar that occurred, as GDX fell below the red neckline area around $42.60.
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When price breaks upwards from the neckline of a head and shoulders bottom pattern, the volume should increase strongly. That's not the case for a legitimate head and shoulders top pattern; when price goes below the neckline, volume should not spike upwards.
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The bottom line is that this head and shoulders top pattern is not as powerfully bearish as it initially appears to be.
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The other "technical titan" in play here is a very bullish double bottom formation. Please click here now.
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A classic double bottom pattern has certain technical characteristics. It is probably the most well-known pattern, but a real double bottom occurs very rarely, and only at the end of a bear market or major intermediate correction.
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The current sell-off in gold stocks certainly qualifies as either a major correction or a full bear market. As price makes the first low, the technician wants to see volume spike sharply, and that happened here.
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Many investors were in a state of panic as that first low occurred, and their selling is what produced that enormous volume.
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The second low in a classic double bottom pattern needs to occur at least a month after the first one, and it should occur on much less volume. You can see that the volume on the 2nd low is dramatically less than the volume at the first low.
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Another key "textbook" characteristic of the second low of this formation is meandering price action. Note the small black box I put on the chart. You can see that GDX price movement is currently weak and aimless.
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The good news is that the double bottom pattern on the GDX price chart is technically perfect. The bad news is that you are living through a "super-crisis", where personal surprise is the main theme.
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The double bottom pattern that has formed on GDX and many individual issues is a very positive event, but it is not a guarantee. If the bearish head and shoulders pattern wins the clash of the titans fight against the bullish double bottom, it's critical that you are able to buy GDX in the $36 area.
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Oil prices are a key driver of gold. Please click here now. Note the head & shoulders bottom pattern in play now. Yesterday's price action took oil back to the "neckline zone" of about $87-89.
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The problems in Syria seem to be intensifying almost daily. I'm a buyer of oil here, partially for that reason, but mainly because it is simply on sale from much higher levels. I'll be a much bigger buyer if this head and shoulders pattern were to fail, taking price below $77.
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Oil is a strategic asset and I consider it to be a form of wealth itself, just as money is a form of wealth. I know that mainstream media has told you that rising oil prices reflect rising demand, and the Dow has risen while oil has risen.
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That's true, but it is also true that if oil were to rise over $120 a barrel, that paradigm could change dramatically. Oil prices that are "too high" can cause huge sell-offs in the stock market.
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The drought has caused a food price spike. Natural gas prices have been creeping higher. A flare-up of Mid-East tensions could cause an oil price spike. These issues are not spoken about by Ben Bernanke, but you can be sure he is watching them intently.
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These price spikes are happening as the US economy begins to slide back into recession. I think QE3 is coming, and it will be so comprehensive that it may be better termed GR1 (Gold Revaluation 1)!
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St
