NEW YORK (
) -- If you own physical gold or gold mining stocks or you plan on buying anything related to precious metals before year-end, you will get excited about my analysis.
Gold topped abruptly a year ago (September 2011) with a massive wave of selling that sent the price of gold from $1,920 down to $1,535.
Technical analysts know the chart suffered the kind of damage that can take a year or longer to repair before gold can continue higher.
But a little more than a year since that top, you can see that gold appears to have stabilized and is building a basing pattern (launchpad) for another major rally.
The charts illustrated below show my big-picture analysis, thoughts and investment ideas.
Weekly Spot Gold Chart
The weekly chart can be a very powerful tool for understanding the overall trend. This chart clearly shows the last major correction and basing pattern in gold back in 2008-2009. Right now, gold looks to be forming a very similar pattern.
Keep in mind that this is a weekly chart, and if you compare the 2009 basing pattern to where we are today, it could take three to six months before gold truly breaks out to the upside and kicks into high gear.
The point of this chart is to provide a rough guide for what to expect in the coming weeks and months.
Weekly Chart of Junior Gold Miner Stocks
If you follow gold closely then you likely already know junior gold mining stocks can lead the price of gold by up to two weeks.
You can track the gold mining stocks by watching the
Market Vectors Gold Miners
Market Vectors Junior Gold Miners
Typically, the stocks tracked by these ETFs will form strong bullish chart patterns and start rising in price before physical gold does.
The chart below shows the junior gold miner ETF with a
chart and volume pattern. Remember that gold stocks are a leveraged play on gold in most cases. For example, if gold moves up 1%, we typically see GDX and GDXJ move 2%-4%. Because they act as a leveraged play on physical gold, smart money and big institutions start accumulating these investments in anticipation of gold rising.
GDXJ has formed a tight bull flag, and the volume levels confirm there is big money moving into these investments. The first price target on GDXJ using technical analysis for a measured move points to the $32 area. Looking forward 12 months with gold trading at more than $2,000, we could see this fund more than double in value.
: while most traders focus on GDX gold miner fund, I prefer the GDXJ fund because its almost identical in price performance,
it pays you a 5% dividend.
It's that time of year again where gold tends to move higher. Below you can see where we are and what the price of gold typically does in November.
Gold Investing & Trading Conclusion
Looking forward one month (November) and factoring in the recent pullback in gold to known support levels along with strong buying of junior gold mining stocks, I feel gold will take another run at the $1,800 level and that GDXJ will test its previous high of $25.50. If both those levels get taken out, then a massive bull market for precious metals could be triggered. Only time will tell.
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This article is commentary by an independent contributor, separate from TheStreet's regular news coverage.