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Gold Primed for November Rally

Last week gold stocks broke out of their downtrend resistance channel as the XAU popped above the 130 level. The market tipped us off that a bullish move was in making, because gold stocks outperformed the metal last Monday and Tuesday before breaking out. In fact gold fell over 20 points on Monday and Tuesday while gold stocks went up. It's easy to forget that this happened since it was a week ago, but it was a key event in the development of this new gold stock uptrend. Remember gold stocks tend to lead the metal so if they trade up while the metal drops its a very bullish sign. As I've written before, I believe we are on track to see the XAU go up to the 145-150 area by Thanksgiving.

What is more, according to the most recent commitment of traders report, the gunslingers - the small speculators that are usually on the wrong side of the market - actually shorted 1,315 gold futures contracts and liquidated 3,894 contracts while the commercials initiated 1,213 new long positions and covered 1,416 short positions. The dumb money is showing us once again why its earned its reputation.

Gold hasn't broken out yet though. Not yet that is. Resistance on gold is right at 600 and gold is consolidating right below this level. A close above 600 will make gold close above its resistance downtrend line that has held it down since last May and should lead to a quick move up to at least the 646 level, and most likely to 665 by Thanksgiving.

At the same time that gold appears poised to breakout the dollar is on the verge of breaking support and making a move down to its May lows. On Friday the US government released GDP figures that show a surprising deceleration in economic growth. The dollar traded down as a result. A close below Friday's lows on the dollar will cause it to close below its support trendline, which has held it in place since May. This is important for gold, because gold tends to trade opposite to the dollar.

We are looking ahead to a wonderful month for gold and gold stocks.

 

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