Sorry!! The article you are trying to read is not available now.
Thank you very much;
you're only a step away from
downloading your reports.

Gold Is No Longer Safe From the Bear's Gaping Maw


Once the HUI mining index breaks down out of its topping pattern, you'll know the last holdout sector has succumbed to the deflationary forces.

At this point I think it's pretty clear the general stock market is now in the initial phase of a new bear market. It's trying to generate a bear market rally over the last three weeks, but so far it's been pretty weak. That doesn't bode well once the cyclical and secular bear trend resumes.

The Amex Gold Bugs (^HUI) mining index is now on the verge of breaking down out of the multi-month megaphone topping pattern. Once it does break down, that will confirm that the bear now has his teeth in the last holdout sector -- the sector that led the bull market over the last two and a half years, and now the last sector to succumb to the deflationary forces.

As I have noted in the chart above, I do expect the miners will find at least temporary support at the 200-week moving average. That should correspond with gold putting in an intermediate degree bottom sometime in the next two or maybe three weeks. Presumably it will come with gold below $1535. My best guess is that gold will make an attempt to test the 75-week moving average at that intermediate bottom.

At that point gold should be severely oversold enough to generate a very powerful, snap-back, A-wave rally. That should be followed by a multi-month consolidation as gold works off the huge gains of the last two and a half years -- this while the stock market continues down into its final four-year cycle low.

I expect the miners will produce a substantial rally off the 200-week moving average also, but I'm afraid they will continue to get dragged down by the general bear market in stocks even if gold does form a high-level consolidation over the next year.

So while I expect to see a great buying opportunity on miners in the next few weeks, I doubt it will be a long-term type trade. That probably won't occur until the stock market puts in its final four-year cycle low sometime in the fall of next year.

Editor's Note: Toby Connor is the author of Gold Scents, a financial blog with a special emphasis on the gold secular bull market.

No positions in stocks mentioned.

The information on this website solely reflects the analysis of or opinion about the performance of securities and financial markets by the writers whose articles appear on the site. The views expressed by the writers are not necessarily the views of Minyanville Media, Inc. or members of its management. Nothing contained on the website is intended to constitute a recommendation or advice addressed to an individual investor or category of investors to purchase, sell or hold any security, or to take any action with respect to the prospective movement of the securities markets or to solicit the purchase or sale of any security. Any investment decisions must be made by the reader either individually or in consultation with his or her investment professional. Minyanville writers and staff may trade or hold positions in securities that are discussed in articles appearing on the website. Writers of articles are required to disclose whether they have a position in any stock or fund discussed in an article, but are not permitted to disclose the size or direction of the position. Nothing on this website is intended to solicit business of any kind for a writer's business or fund. Minyanville management and staff as well as contributing writers will not respond to emails or other communications requesting investment advice.

Copyright 2011 Minyanville Media, Inc. All Rights Reserved.

Featured Videos