Yesterday, we donned our deerstalker hat and speculated the worst of the October selling was done. No dice.
US stocks broke lower in the session overnight. The VIX spiked up again – though still not as high as October 10.
This rolling pressure keeps washing over the Aussie market. Stocks going higher are hard to find – with the exception of one sector.
Yep – gold.
The American Gold Bugs Index [AMEX: HUI] is up 16% since the low it made in September.
It’s a measure of gold-producing stocks with exposure to the immediate fluctuations in the price.
But the US producers’ stocks are actually getting pretty small beer compared to their Aussie counterparts.
The drop in the Aussie dollar has sent gold to AU$1747 currently.
There are gold companies here that can pull it out of the ground for $1000-$1100, and sometimes even less.
These are very good margins. That’s why the S&P/ASX Gold Index [ASX: XGD] is up 12% in about two weeks.
I did a scan of stocks making new 52-week highs over the last month. It’s a thin list. It’s mostly gold stocks.
I’ve said this before, but it bears repeating. This is pouring revenue into the gold players, and is highly likely to lead to more mergers and takeovers.
That’s exactly what the industry needs, according to GoldCorp chief executive David Garofalo.
He’s in the Australian Financial Review this morning saying there are too many companies in the sector. He wants more companies to consolidate.
Anyway, for today’s edition of Profit Watch, I’m going to hand you over to Shae Russell.
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Shae called this move up in gold. I certainly didn’t.
Where do we go from here?
Over to Shae below…
Get Gold for the Next Leg Higher
What’s gold likely to do next?
In my view, I believe we have seen the bottom and we could see the gold price rally get ready to stretch its legs.
Since July, I’ve been suggesting that the gold market would bottom around the US$1,180-1,190 mark.
Furthermore, I have consistently – or repeatedly, as my co-workers would phrase it – said that the gold price would begin to rally in September/October.
The reason for my two forecasts was simple. The price range of US$1,180-90 was part of a 10% price correction from the May high.
And the September meeting was when the Federal Reserve Bank would raise rates for the third time this year.
A rate increase from the Fed is often a sign the gold price will move higher.
The days of the yellow metal being under twelve hundred bucks are over. These lows in the gold price we’ve been watching over the past few weeks will become traders’ folklore. An ‘I remember when’ tale of missed trading opportunities…
From here, to cement the gold price rally, we need to see the metal take a few stabs at the US$1,240-50 range over the next few weeks.
And if that happens, well hang onto your hats, because gold is getting ready to soar…
In fact, I have even suggested to my publisher that gold has the chance to go ‘parabolic’.
Like we saw at the end of 2008.
Perhaps even like the crazy gold price action in 1979.
A gold bull market moves in three distinct stages.
One of those is based around a weakening US dollar.
The second stage is where more and more investors begin moving into gold.
And that final stage is the stuff of legends. The days where gold moves up hundreds of dollars in value each month.
Simply put, I believe a new gold window has not only opened, but the yellow metal is getting ready to move upwards in a straight line once more.
The thing is, if you want to be part of that metaphoric rise, you need to know when the right time is AND the right way to play it.