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To Da Moon!? Not so Fast... (Part Deux)

It is very simple. The miners exploded off of an oversold condition in mid-May. They did so with such ferocity that many found it hard not to declare "bottom!", which perhaps it was. But goldbugs' hearts are made to be broken, and the ultimate near or mid term bottom may not be in. My "guess" is that it is. But an ongoing analysis of the situation is warranted.

It is amazing how quickly HUI has been brought to a critical point in its rally. Today it stands in danger of falling through its first line of strong support at around 195 where it had previously overcome resistance. Also, the neckline to the would-be inverted head and shoulders cuts right through that area. On a positive note, RSI remains littered with bullish divergences.


Chart courtesy of stockcharts.com

Another indicator one should be watching is the HUI/Gold ratio. As noted previously, the miners led gold's rally and the USD's hiccup and more of the same leadership (up or down) should be expected. As long as the trend holds in this ratio, I'd say we've still got game.


Chart courtesy of stockcharts.com

Now would be a perfect time for the miners to think about leading to the upside again, but how often do things go perfectly and according to plan? The best strategy in my opinion is to trade what you've got to trade, hedge (NEM and/or XAU puts?) as needed, and hold those "investments" for the real move, whether it be right now or down the road.

I am not afraid to admit that I do not know what the future holds. I believe the gold bullion story for the long term (and hold GLD, IAU & CEF without even looking at them), but the miners are a whole different animal. An animal the can bite hard or provide extended periods euphoria. It is important to remain impartial and open to any near term possibilities.

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