Gold Stocks Gap Up

January 16, 2009 Gold Stocks, Market Updates, Predictions No Comments

Yesterday the $800 dollar level in gold held. Today the dollar is down and the gold stocks have gaped up. What a difference a day makes! The Dow is down 15 at 8,197, the NAS down 20 at 1,491 and gold is up $19.50 at $836.20. Quite a turnaround from yesterday’s brush with the $800 level.

The Indian market saw an upturn in gold purchases as the the spot price moved closer to the $800 level. Later in the day professionals came into the market and started buying which probably set the stage for this morning’s gap up in the stock prices. This is a very important move that may be signaling the bottom for this correction in the price of gold. Yesterday may have been the day to man up and buy both GG and RGLD, but I am more comfortable doing it today because there is less of a chance of gold falling through the $800 mark.

When we look at the 2 day chart of both GG and RGLD the gap is evident and I know that even though I did not pick the bottom of this correction, I feel happier knowing that I may have avoided buying the stocks yesterday and watching them crater if the $800 level hadn’t held.

Gap up in the 2 day chart

RGLD two day chart

Both stocks gaped up and RGLD proceeded to back pedal and filled the gap. Both stocks have tacked on $2 since their lows, so I think this may be the start of the next up leg in the gold stocks. The dollar’s fall from grace today adds fuel to the fire. If the dollar continues down, gold will track it inversely.

More Bad News from the Financial Section

In the financial section, the banks continue to lose money. Bank of America posted a $1.8 billion loss in part due to a $15.3 billion loss at it’s newly acquired Merrill division. Citi managed to post it’s 5th straight quarterly loss in the amount of $1.8 billion. The hits just keep on coming and they will undoubtedly weigh heavily on the dollar’s parade. Once the dollar starts to fall toward the .72 mark, gold will launch in the opposite direction. It is only a matter of time before the markets realize that the dollar is toast and that inflation is roaring down the tube.

When taking all this into consideration, the price of quality gold stocks are at, or near, bargain basement prices. The momentum is about to shift and purchases of GG at $25 or under and RGLD at $44 or under will prove to be great entry points over time. I still predict gold at a minimum of $1,000 per ounce by years end. This is only the beginning of gold’s move. My only hesitation is my belief that I may have been too conservative and gold may well over shoot that mark this year. Please do your own due diligence before buying or selling stocks. I am not an expert, just an everyday trader sharing my experience in the market that I trade the most, namely gold.

Till next time, good luck and good trading!