Gold on Verge of Historic Breakout?
Source: MarketWatch, Peter Brimelow (5/25/09)
"Watch that $990-$1,000 area like a hawk."
After Friday's $956.50 close, Martin Pring—decidedly not a gold bug—set the tone in his Weekly InfoMovie Report:
"Gold could be on the verge of a historical breakout. Watch that $990-$1,000 area like a hawk."
Dow Theory Letters' Richard Russell has also been interested in GDX. On Tuesday he noted a "sensational" breakout. After Friday he said this:
"Ordinarily I would only add gold items on a correction, but gold seems on a roll now, so I added GDX."
Two developments are causing the excitement about gold. From a charting point of view, gold shares are generally agreed to have broken out, meaning that gold itself could well be about to do something very important. Australia's The Privateer (whose free U.S.-dollar 5X3 Point-and-Figure chart looks very handsome after Friday) describes the situation:
"What is being traced. . .is a gigantic 'reverse' head-and-shoulders formation. The trading range between US$900 and US$1,000 was broken early in April. Over the month of April, a tighter range between US$870-US$910 was established. Now, gold has broken back above that range. The 'right shoulder' on the 'reverse' head-and-shoulders formation is getting wider. . .are two major resistance points. The first is at US$955. . .where the chart is now. The second is, of course, at US$1,000, the level reached in March 2008 and again in February 2009."
Several other commentators see the same thing.
The second bullish gold development: general economic conditions.
As the Gartman Letter noted on Wednesday: "The dollar does look vulnerable. . .Pushing government steadily leftward, the Obama Administration has set up the possibility of a U.S. dollar rout. . .If this persists, commodity prices generally shall rise and rise materially, and gold shall too.
FGMR's James Turk is so intrigued that in this weekend's issue he considers altering his normally cautious trading style:
"I think we are very close (7-10 months) to the beginning of a hyperinflationary spiral. . .If I am right. . .there obviously is an exceptional opportunity to load up (i.e., a leveraged position) by buying gold."