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Gold Bull Market Charges On


Charts and news suggest higher prices are coming.

In the previous essay I mentioned that a brief consolidation is in the cards and is likely to take place immediately, or after an additional few more days of rising gold, silver, and PM stock prices, and a small dip in the USD Index. I stated that if mining stocks break down from the triangle pattern, the following move should be rather insignificant -- I don't think that it would take the GDX ETF below 37 level.

This week GDX ETF (proxy for PM stocks) moved to 37.02 and bounced sharply. The move to the 37 level that materialized on Tuesday and Wednesday was rather rapid and took place on relatively high volume, which means that many investors were shaken off the golden/silver bull. I doubt that these investors were nimble enough to get back in at the exact bottom, and are now wishing they'd kept their positions in tact. Fortunately, those who follow my analysis knew about the coming correction ahead of many other market participants, and were prepared for this scenario.

Moving on to this week's precious-metals markets, let's begin with gold (charts courtesy of


I'd like to begin with a yearly chart in order to put things into perspective. The year 2008 saw disastrous nosedives in many markets as hedge-fund managers were forced to liquidate positions to raise cash. Consequently, many markets were hit that normally would have been expected to hold up well, including the gold market, which is generally known as a safe haven during times of economic turbulence. As time passed, however, investors picked up investments with the best fundamental situations and prices resumed their previous trend. This is what happened with gold.

Although the situation for gold and other PM markets is favorable fundamentally (and now, also technically), there are voices that doubt the existence of the PM bull market and wait for it to plunge once again. My interpretation of gold charts, the fundamental situation, and recent news, tell me that higher prices -- not lower prices -- are in store in the coming months.


Last week I wrote: During a similar breakout in May, silver has consolidated around the price level corresponding to the previous local top -- the $13-$14 area. The analogical price level today is several cents higher -- around $14.

The small consolidation took place this week, and now, technically speaking, silver is in a much more favorable juncture. The momentum traders have been shaken out of the market by this week's correction, and new buying power emerged. Momentum traders will be back once we move higher, adding more fuel to the rally. On the chart above, we see this as a small consolidation. Many indicators react to such a consolidation by going out of the overbought territory, as you can see in the featured Stochastic Indicator.

Please note that when prices rose on a strong volume, a rally followed (marked with a blue arrow). But when the same took place on relatively low volume, we've seen lower prices of silver (red arrows). Therefore, high volume during Friday's upswing suggests that this day has most likely marked a beginning of a new rally
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