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Clif Droke

Clif Droke

Clif Droke is the editor of the two times weekly Momentum Strategies Report newsletter, published since 1997, which covers U.S. equity markets and various stock…

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Is the Gold Bull Market Dead?

The question of the hour is, "Is the gold bull market dead?" My answer plain and simple is "no!" A couple of prominent articles published on some high-profile financial web sites this week have been extremely bearish on gold's intermediate-term prospects. I do not share this view. One such article called for a major sell-off across the board in gold and silver shares. I'm not sure what you would define as a "major sell-off" but to me it would be a decisive penetration below the 70 area in the XAU and maybe a smash below $330 in gold futures. Is this possible? Yes. Likely? I don't think so.

As I survey the weekly charts in a number of gold and silver issues, I see a dominant theme that gives me confidence that these shares will maintain their composure and make it through this storm intact. I see the 90-week moving average is decisively rising in most of these stocks, and that is a good thing. The 90-week MA is dominant and reflects at least two important short-term and intermediate-term cycles which governs the gold share sector's price action. So if there's any substance behind the gold shares it will be seen in the 90-week MA holding firm. And the strength reflected in the 90-week moving average at this point suggests to me that we will not witness an all-out crash in the gold share market.

What we are now witnessing is simply a reaction to the rally in the U.S. Dollar index along with a legitimate pullback from an over-extension in the gold stocks. For example, the leading indicator for the gold stocks in recent months has been Freeport McMoRan Gold (FCX), not Newmont Gold as everyone seems to think. FCX has anticipated either a decline or a rally in the broad market every time this year and has had a terrific performance through July. To say that FCX is "overextended" is somewhat of an understatement. It's very overextended from its dominant moving averages, so a "pullback," or correction, can be logically expected.

And what about Newmont (NEM)? This is the blue chip that everyone has been talking about lately, and it's obviously undergoing a correction right now. How far down can NEM fall before it finds support? If you consider that its March low was at $24 and its June-July top at about $34, then allow for a 50% retracement that only puts Newmont at the $29 area for a possible correction low. The $28-$29 area is where the 30-week and 60-week moving averages intersect, so finding support above $28-$29 wouldn't be so bad. In fact, finding support on top of $30 would be even better since this is a pivotal point in the weekly chart and a previous resistance level. So bottoming at or above $30 would only confirm that a major support has been established and would allow NEM to resume its bull market from a very good technical footing. As with the others, NEM's 90-week moving average is rising, so I do not expect a "crash" in Newmont, either.

Goldcorp (GG) should be able to find support somewhere above the $10 area, where its 90-week MA intersects in the weekly chart. Glamis Gold (GLG) could easily find support above its 60-week MA, also at $10.

What about Hecla (HL)? Is Hecla in serious trouble? I believe Hecla can find support above its rising 90-day moving average somewhere above $3.50 at worst and possibly even above $4.00.

How about Silver Standard Resources (SSRI)? SSRI has found support above its 90-day MA for over two years, most recently bouncing off the 90-day MA at its March low. I believe SSRI can find support above its 90-day MA this time around, which currently intersects $4.20. Pan American Silver's (PAAS) 90-day MA intersects near $6.15-$6.20 and also looks like a strong support. In fact, PAAS may find support above $6.50 where the 90-day moving average crosses through.

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