Yes, gold is hanging in there strong, isn't it? Old school gold bugs are all fired up due to breaks in the trend line and they should be. But as a short term event, gold and gold stocks are about to plunge. Their strength has been impressive and it tells you what's coming once the spring rally gets going. But right now, the message is loud and clear and unequivocal: gold and gold stocks are about to plunge.
Comparing gold and gold stock prices charts relative to one another is an important exercise for gold stock and gold price traders. If gold stocks as a sector don't leverage gains in the gold price or at least keep pace with the gold price, you should be worried about the health of the current trend.
First, the price of gold, with important points marked with letters on the chart:
Next, the $HUI gold bugs mining index, a basket of unhedged miners (meaning that these companies benefit immediately from a rise in gold price):
This isn't just a difference in price movements over a few hours or even a few days. This is a flat gold stock chart over the past 6 weeks while gold has been quietly making new highs. This divergence is one of the absolute must know about and follow secrets of gold stock trading. When gold is rising and gold stocks aren't, they're both probably about to go down. And don't get me wrong, this is a short-term correction we're talking about.
However, short-term corrections in gold stocks can be 20-25% routinely and that's why I'm short. Once this correction is over, and it will be before February is, I will be betting the farm going long gold stocks for a powerful spring rally I am confident will occur. Nothing has changed over these past two weeks to change my outlook and, in fact, today's move in gold up without a new high in the $HUI makes me even more confident a plunge is imminent. I am anxiously awaiting this next buying opportunity not only in gold stocks, but in physical gold.