Edelmetalle, Devisen & Rohstoffe: Juli 2007

The powerful rally by large Precious Metals (PM) stocks over the past couple of weeks is believed to be the start of a ‘breakout drive” that will vault the sector indices out of the large holding patterns that they have been stuck in for past 18 months, for these patterns date back further than the actual highs to the start of last year, ushering in a period of rapid and substantial advance.

There are two crucially important points to appreciate at this juncture. The first is that PM stocks, being the province of speculators much more than the PMs themselves, tend to lead the latter, so that the current vigorous advance in the big PM stocks can be expected to translate into strong rises in gold and silver soon, which are still way below their highs of last year. The second point is that the big PM stocks tend to take the lead and perform best early in a PM sector uptrend, while the small exploration stocks behave like the sediment at the bottom of a river - it takes quite a current to get them stirred up - and so they tend to perform best towards the end of a sector uptrend when the uptrend has been underway for sufficient time to attract increasing public attention. This is why the largest stocks are performing really well at this juncture, which is made obvious by placing the charts for the HUI and XAU indices one beneath the other - the HUI index is comprised of lower cap stocks than the XAU. When we do this we see immediately that although the HUI index has not made a clear breakout above its key resistance level, it can be expected to do so shortly, because the XAU index has staged a clear breakout.

We had turned bullish on the sector earlier this month because of the substantial improvement in the COT charts for gold and silver, and because of the strong evidence of accumulation observed in the individual charts of large PM stocks, which is why a raft of large PM stocks have been recommended on the site over the past week or so. Both of these crucial factors have implications far beyond the rise we have witnessed thus far - A major uptrend is believed to have begun that is still in its infancy - and before its done it can be expected to take the sector indices - and most PM stocks way, way beyond the highs of last year. For sure a short-term overbought condition has now developed that may lead to a reaction, and we will have to contend with various reactions as the uptrend progresses, but these reactions should for the most part be minor and short-lived, thus if the sector reacts next week the opportunity should be seized to complete desired purchases at better prices.

While it is interesting to attempt to figure out the fundamental reasons why gold and silver should enter a period of strong advance right now, and possible reasons are set out in a plethora of articles by other writers, technically, it is not necessary to know - regardless of fundamentals the language of the market itself is pointing to an imminent strong advance in gold and silver.

One potential big reason for a powerful advance by gold and silver is the lurking possibility of a disastrous breakdown by the dollar below its crucial long-term support at 80 on its index, which it is now just above. Such a development would be expected to lead to a rapid retreat by the dollar towards 70 that would send financial shockwaves around the world. It is simply not known if the PPT, the Plunge Protection Team, has the strength in the face of the enormously powerful bearish forces at work, to prevent this happening or at least put it off for a while longer. Currently, the dollar is very oversold on a short-term basis, so it is as good a time as any for the PPT to stage a rally.