Shrinking volatility continues to characterize the gold market as gold stocks remained in a narrow range last week. In fact, volatility for gold stocks has reached its lowest point all year. The last time volatility indicators on the XAU, such as the bollinger bands, hit these kind of levels was last December.

This is important, because huge moves always follow periods of extremely low volatility. It is a flashing red light that is about to turn green and you need to be positioned to take advantage of what is to come right now. Everything is lined up for gold stocks to break out and go higher. The XAU/gld and HUI/gld ratios are both rising - they tend to lead the action in gold and gold stocks- while the dollar is poised to break through its 84 dollar support level and head down to 80. Fed fund futures are pricing in a mere 16% probability that the Fed will raise rates again at their next meeting. And if that's not enough to convince you, in just a week we will be in what have historically been the most bullish months for gold.

A close above 150 on the XAU will mark the next leg up for the XAU. When it comes, I expect it to go straight to its 52-week highs. The move is likely to begin this week, but it's possible that it'll just sit and let the volatility shrink some more. The lower the volatility before a move begins the bigger the move will be - and we are already seeing very low volatility levels so when this move starts I expect it to really take some people by surprise.

Don't take your eyes off the metal though. It too is in a bullish technical pattern. Just like gold stocks, the volatility in gold has been shrinking over the past few weeks. Every time this has happened in the past four years, gold rallied at least 10% over the next eight weeks. We're going to see gold above 725 by the end of the year.

There are some gold stocks that I believe provide safe entry points right now. They have been consolidating for the past few weeks so their support levels are not too far from their current prices. That means you can place fairly close stops to position yourself with a low-risk/high-reward entry point. Take a look at these stocks:

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