SliderOnTheBlack.com

The HUI gold stock index has continually traded within tightly bound trading ranges during each phase of this gold bull. During 2006, and the first half of 2007, gold and gold stocks were fundamentally driven by the collapse of the U.S. Dollar and rising inflation. Even with the parabolic surge in commodities resulting in new highs for gold and gold stocks in May 2006, gold still traded in a very defined trading range as shown in this chart.

In August 2007 we saw the first market collapse due to the blow up in subprime credit and housing. That capitulation led to one the great buying opportunities in gold of this entire cycle, as the Fed soon began cutting interest rates. Here’s the performance of the HUI Gold Stock Index during the Fed’s rate cut cycle.

Gold stocks anticipated the end of the Fed’s rate cut cycle, putting in a mid-March top (and a new all time high), nearly two months prior to the Fed’s last rate cut, and entered another tightly bound trading range as shown below.

The question now arises, will gold and gold stocks break out of this most recent trading range and put in “significant” new highs?

And how abou the Oil/Gold ratio?

Gold completely disconnected from Oil during crude’s recent run to new all time highs. And now today, oil is having one of the largest one day corrections in NYMEX history. Also, the SEC has instituted new emergency regulations to prohibit (prevent) naked short selling in Fannie Mae, Freddie Mac, and the
broker dealers themselves (who do most of the naked short selling!)

Actually, there is presently a technical signal that gold stocks have gotten just a bit ahead of themselves here in one of my main technical indcators for trading gold — the Yen:Dollar ratio.

Sometimes… you just have to take what the market gives you. And in the gold stocks, the market has been giving us a nice easy trading range in which the indicators have clearly, and consistantly signaled directional shifts.

If this is the beginning of a major correction in oil… the last thing gold bugs want to do, is to get greedy.

I don’t think we’ve seen the highs for gold, or gold stocks… but, it’s not going to occur into a market meltodwn, or a correction in crude oil… or when the major technical indicators are signaling otherwise.

It’s going to come when Bernanke and Paulson run out of bullets, and when Bernanke stares a deflationary asset collapse in the eyes… and does what he’s told us he’s going to do all along…

…drop money from helicopters.

They will re-inflate.

When, not if… because soon, that will be the only option they have left.

And if you’re watching the right indicators, you’ll know.

And if you’re not - I’ll tell you (vbg).

Mo later,

SliderOnTheBlack