Friday, July 06, 2007

Gold Stocks Are Stronger than Gold

On June 16th, I posted in great detail how gold stocks may be getting ready to rally.

Above is the exact chart from June 16th that I posted and has been updated to include the current close. As you can see, this forecast was right on the money because the HUI index is moving higher.

Unfortunately we can't trade the HUI index so rather than buy various gold stocks last month, I chose to buy GLD. I figured GLD would rally with the HUI index but I was wrong...GLD was weaker than HUI.

On that last move down towards the end of June, GLD actually broke low stopping me out but the HUI index held support and did not make a lower low. This indicates to me that gold stocks are stronger than gold futures. Like I said, I wish I could have bought the HUI index because if I did, I would still be long and wouldn't have gotten stopped out.

Gold (GLD) appears to be forming a head and shoulders formation so I'll be looking to get long again on a move above last Monday's high but I think gold stocks are the better buy.

Below is a chart of the HUI index divided by gold. As you can see this ratio has broken its one year downtrend line which means gold stocks are becoming stronger than gold.


krhulak said...

Did you try GDX instead of GLD? It tracks gold stocks better.

Kevin said...

Yes, GDX could have been another way to play the gold stocks.


alphax said...

GDX is up 10% from its low. Do you think its still ok to get in at this price or wait for it to correct? Thanks.

Kevin said...

I'd wait for a little dip...maybe a one third retracement.


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