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.
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.
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