360 Degrees of Gold

Guy Lerner, Mark Manning and Rev Shark examine the precious metal from all angles.
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Editor's note: In this edition of "360 Degrees,"

RealMoney

commentators assess the resurgence of gold and mining stocks.

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"360 Degrees" is a feature that takes advantage of our varied stable of contributors to

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Precious Metals Take a Special Look, by Mark Manning

Originally published on

RealMoney

on Nov. 1 at 2:38 p.m. EST

I like to look for sectors where institutional funds are likely to flow next. The rotation into gold and silver showed up back on

Oct. 19, and those areas continue to show strength. During my scans last night, gold and silver were right at the top of my list for the highest percentage of gainers. The problem is that many of the stocks are in wild and loose patterns, so they aren't in buyable areas from a risk/reward standpoint.

But understanding what could lie ahead for a factor that seems to support the run in precious metals can help in making informed decisions about headliners such as

streetTracks Gold Shares

(GLD) - Get Report

and

Barrick Gold

(ABX)

.

One of the catalysts behind the move in gold and other commodities is the recent weakness in the dollar. The chart below shows that the dollar has broken down through its 50-day moving average and now sits on support around 85. A break in this support level will probably lead to a test of the May/June lows. If that happens, it will add to the strength of the metals and other commodities.

The Gold & Silver Index's chart shows how directly it responds to the dollar's drop; the index has moved up as the dollar has slid. I mentioned back in October that the next area of resistance was going to be the 200-day moving average around 140. Now that the index is approaching that area, it would be healthy if it consolidated here to work off the recent V-shaped move. That consolidation could allow the index to build up enough steam to get through the 140 resistance level.

Another positive factor for the precious metals is the low percentage of positions in gold and silver by large speculators. The chart below shows that these large speculators are about 30% long these futures; that is near multi-year lows. And that leaves plenty of room for these buyers to increase their positions.

Now that we've looked at what's going on with the sector indices, let's look at the related equities. streetTracks Gold shows a better pattern than the Gold & Silver Index. It already has broken above the 200-day moving average, and tested it Tuesday. If streetTracks Gold can hold this level, it could make a quick move to the $66 area.

Barrick

(ABX)

has one of the better looking stock patterns in the gold complex. It too has a loose pattern, but has tightened up lately in the $30-$31 area. It has consolidated above the 200-day moving average. However, Barrick still needs to break out of this triangle pattern. If that can happen, the stock's next target would be $35-$36. But look out for a break below $29; that would signal a pattern failure.

Gold Setting Up Nicely, by Rev Shark

Originally published on

RealMoney

on Oct. 31 at 10:55 a.m. EST

I've talked quite a bit about oil and gold lately and continue to watch those sectors carefully. I particularly like the way gold is setting up and have been increasing my exposure in the

streetTRACKS Gold

(GLD) - Get Report

and in some individual stocks such as

Kinross Gold

(KGC) - Get Report

and

Birch Mountain

(BMD)

.

We'll see how the golds develop, but I believe they may be setting up for a multi-month move.

At the time of publication, De Porre was long GLD, KGC and BMD, although holdings can change at any time.

Please note that due to factors including low market capitalization and/or insufficient public float, we consider Birch Mountain to be a small-cap stock. You should be aware that such stocks are subject to more risk than stocks of larger companies, including greater volatility, lower liquidity and less publicly available information, and that postings such as this one can have an effect on their stock prices.

Birch Mountain, by Dan Fitzpatrick

Originally published on

RealMoney

on Nov. 1 at 12:41 p.m. EST

Birch Mountain has closed above its 50-day moving average for the first time in months. At the same time, the stock is breaking above established resistance from a tight volatility squeeze. If you're long, try setting a fairly loose stop just below the support line drawn above.

Birch Mountain, by Michael Brush

Adapted from a post in

RealMoney

's Columnist Conversation published on Nov. 1 at 2:37 p.m. EST

Birch Mountain is an interesting little Canadian tar sands play. I wrote about it for another Web site at the end of September. It controls limestone quarries. Near term, it's a play on the tar sands-related construction boom.

It has an application in to use limestone in scrubbers for tar sands processing plants. This one came to me from an energy sector analyst who has to go unnamed because he doesn't cover the stock, but he's put a few small-cap energy five-baggers on my radar screen in the past few years. I have no clue what this one will do near term and I don't really care since I think short-term trading, like Vegas, is always a loser's game in the long run. But if it gets approval to use limestone in scrubbers, this stock could really move and that's what I'm holding out for. It's a multiyear play.

I agree, gold goes up near term, too. I hope to post a piece on that over the next few days with some interesting technical analysis that I haven't seen circulating too much.

At the time of publication, Brush was long BMD, although holdings can change at any time.

Gold Gets Its Gleam Back, by Guy Lerner

Originally published on

RealMoney

on Oct. 31 at 11:01 a.m. EST

I see six technical reasons to be bullish on gold.

Recently, the yellow metal has outperformed stocks, as we can see by comparing the

streetTRACKS Gold Trust

(GLD) - Get Report

, the ETF that mimics the price of gold, with

S&P 500 Depositary Receipts

(SPY) - Get Report

.

The relative strength indicator in the lower panel of the chart below broke upward through the down-sloping orange trend line two weeks ago; this shows that gold is now outperforming SPDRs.

Note how the indicator went higher while the price of the streetTRACKS Gold Trust fell (marked by a black vertical line). This is a positive divergence.

Lastly, both the relative strength indicator and the gold ETF have printed inverted head-and-shoulders patterns; this suggests that the gold ETF has bottomed.

Gold Outperforming Stocks

Click here for larger image.

Source: The TechnicalTake.com

Gold has also outperformed bonds, as seen on the relative strength indicator in the lower panel of the chart below, which compares the gold ETF with the

iShares Lehman 20+ Year Treasury Bond Fund

(AMEX)

.

Gold Turns Up Against Bonds

Click here for larger image.

Source: The TechnicalTake.com

In addition, gold is doing better than the Dollar Index. The relative strength indicator below for a continuous gold futures contract against the Dollar Index has broken above a five-month downtrend line and has made a higher high.

Gold Beating Dollar

Click here for larger image.

Source: The TechnicalTake.com

One of the more compelling reasons to be bullish on gold is the impending breakdown on the weekly chart of the Dollar Index below.

Dollar Index

Click here for larger image.

Source: The TechnicalTake.com

Since April's sell-off (point 1), the Dollar Index has labored higher. In what appeared to be a breakout, the Dollar Index actually traded above an 11-month downtrend line and the 40-week moving average for about a week (point 2). Despite being above these technical levels, the Dollar Index failed to follow through, and it did not make a significant up-thrust pivot. This demonstrates weak momentum.

Consequently, it has fallen back below the orange internal support trend line and is barely trading below the shorter-term black uptrend line (point 3). Lower prices for the Dollar Index should be expected, and a close below pivot-point support at $84.70 would confirm this. If this turns out to be the case, it wouldn't surprise me to see $80 tested. A close above the 40-week moving average would suggest that my analysis is wrong.

Gold-mining stocks are also turning higher, as reflected by the indicator in the bottom panel of the chart below, which is the percentage of stocks among the 15 largest miners that are trading above their 40-day moving averages. Recent bottoms in the indicator are noted by green vertical bars.

Gold Stocks Turn Up

Click here for larger image.

Source: The TechnicalTake.com

The most important reason to be bullish is the price structure of streetTRACKS Gold Trust.

StreetTracks Gold ETF

Click here for larger image.

Source: The TechnicalTake.com

The significant up-thrust pivot (point 1) on the daily chart above suggested that the ETF's downtrend was ending. Since then, it has consolidated into an inverse head-and-shoulders pattern. On Monday, the ETF gapped above the significant pivot high at $59.76, its 200-day moving average and the down-sloping trend line drawn from the May top. Volume was above average, but the close was weak as it slid back below the 200-day moving average. The downtrend for the gold ETF is almost over.

In addition to the good price action, the on-balance volume indicator in the bottom panel is also supportive, as it is leading the ETF higher, having already broken above a long-term downtrend line.

A close below $58.40 would be reason to give up on a bullish bet on this ETF, as the price pattern would be busted.

In the end, gold isn't supposed to go higher. We're told that inflation is low. But in a world where hot money is looking for returns, gold, which has been lagging bonds and stocks over the past six months, may start to shine again.

Michael Brush is an award-winning New York-based financial writer. In addition to writing for

RealMoney

, Brush has a weekly market column on

MSN Money

called Company Focus, and a column called Insiders Corner at InvestorIdeas.com.

Dan Fitzpatrick is a freelance writer and trading consultant who trades for his own account in Encinitas, Calif. He is a former co-manager of a hedge fund and teaches seminars on technical analysis, options trading and asset-protection strategies for traders and business owners.

Guy Lerner is an anesthesiologist and freelance writer who trades for his own account. He blends technical and fundamental analysis to find factors that lead to sustainable moves in the markets. Lerner's approach is research-driven and focuses on supply-demand issues, investor sentiment, intermarket relationships and monetary liquidity.

Mark Manning, AAMS, is an Accredited Asset Management Specialist and Registered Investment Advisor with Butler, Wick & Co., where he specializes in wealth management.

James "Rev Shark" De Porre is a self-taught trader who primarily trades for his own account from his home on Anna Maria Island, Fla. He is a member of the Michigan Bar Association and a former tax attorney and CPA.