FSU Editorial: "Gold & Uranium Stocks Ready to Move Higher!" by Greg Silberman 04/27/2006

GOLD AND URANIUM STOCKS READY TO MOVE HIGHER!
by Greg Silberman
April 27, 2006

Can I let you in on a Secret?

I think Gold and Energy stocks have much more UPSIDE in store for us. And that Upside is about to begin right NOW!

Sometimes you have to MARVEL at markets. Here is a Tool that condenses Millions upon Millions of individual views into an Absolute number. That number then fluctuates based on MOOD changes. In other words our individual thoughts are reduced to a sort of Group Think. And when you plot the price movements as a result of Group Think you end up with a Market that can somehow PREDICT the future. The KEY is to guess what the Group WILL think before it Thinks it. Huh?

Let's take a look at recent Gold and Energy (GE) Stock action to see what I mean�

It's public knowledge that Gold has reached a 25 year HIGH and Oil has reached an ALL time HIGH.
It's also obvious to anyone (with minimal Technical Analysis knowledge) to see that GE stocks are Over-Bought and in need of a �Rest�.
Any analyst worth his Salt knows that when Junior Speculative issues start RUNNING a TOP is rapidly approaching.
I've listened to many analysts, some a lot cleverer and more experienced than me; explain why GE stocks are due for a pause.
In the latest issue of the Australian Financial Review I read that the Metal stocks are WHITE HOT. �But Commodities are cyclical and it’s a matter of if not when the Cycle will end.�
The Gold Stock Forums have been surprisingly negative!
Even I've been saying for weeks that we are close to a TOP followed by a 6 month consolidation.

And yet�.that little Contrarian voice in my head is saying, �Not yet Buddy Boy!� Thursday�s action (5/20) was the PUREST Bull Market action I've seen in Months. They call it a Bull because it does everything to throw you off it’s back. A GUT WRENCHING drop is the Bulls way of KICKING you to the CURB! The Bull is AIMING at you and won't quit until it throws you out of the Market. The $2 Free Fall in Silver did a fair bit of psychological Damage, especially to new players in the Precious Metals arena.

Look here Greg, it’s all fair and well to speak of voices in your head, but what's the justification for thinking GE�s may rise from here? Show us some HARD facts Man! You're right. Let's turn to some charts:

Chart 1- HUI vs. Yield Curve

The recent breakout of the HUI, to new highs at 385, has got me doing all sorts of SERIOUS thinking! Yes, we could be looking at a genuine DOUBLE TOP. The MACD and RSI are not confirming the new Price high. The XAU index (not shown) has not broken out to new highs. But, the fact is that Price DID make a new HIGH when it moved above 349.48.

Did you notice what Propelled Gold Stocks higher? A steepening Yield curve (pink lines). Now the yield curve is steepening because of rising Rates at the long end of the curve, not the FED engineered Short end. This implies that the Bond market is sniffing inflation. If the FED continues raising Short Rates, the Long end may not oblige and may continue to rise. The Yield Curve may continue to steepen and Gold stocks continue to rise.

All of this is taking place in a less than Stellar stock market environment. Which means that Gold Stocks may be marching to the Drum of the Yield Curve and not the Broader market. Gold Stocks may not CORRECT if the Broader Market does!

As I've mentioned in a previous article (HUI Targets), I calculate targets based on the magnitude of the previous Wave multiplied by the Fibonacci ratio of .618. In this instance the previous wave was from 214 to 349 (Green rectangle) or a 63% move.

63% x 0.618 = 39%
349 x (1+ 0.39) = 485.

Add and subtract a 10% tolerance rate gives us a potential target of about 440 to 540 for the HUI. That's at least 25% HIGHER than current levels! Hmmm, not quite the Consensus view! A break below 350 would strengthen the view of a Double Top. A break above 385 and the above targets become very real possibilities. By the way, the weekly HUI chart (not shown) projects exactly the same targets.

Energy Stocks

Mind you, this �idiosyncrasy� is not only unique to Gold stocks. The Energy patch is exhibiting very similar action, particularly in our favorites, the Uranium stocks. Since there is no Uranium index, I like to use the Uranium Blue Chip Cameco Corp as the industry proxy.

Chart 2 - Cameco Daily

Are we witnessing a Double Top or Breakout in Cameco? Here's the evidence, you decide� In support of a Double Top, the MACD and RSI are not confirming the move to $43.44. In support of a Breakout, the old high of $41.08 has been exceeded and the price is currently holding above the breakout. In addition, Oil Supplies are reportedly at 10 year HIGHS.

QUESTION: Why are Energy prices so high if there is so much Supply around?

ANSWER: The Energy markets is Discounting an upcoming WAR in the Middle East. Or at the least, IRAN is weighing VERY heavily on the market. As with Gold Stocks, Energy may be following its own Drummer and detaching from the broader stock market.

If this is indeed a new breakout, the target (based on same methodology as above) for Cameco is $61 [(1+(41.08 � 23.05)/23.05 *.618) * 41.08]. Applying a 10% margin of error either way gives us a target range of $55 to $67. That's at least a 31% rise from current prices.

As with the HUI, I think the best strategy is to wait to see how this resolves. A move above $43.44 and $55 and above is in sight. A move back below $41.08 and the Double Top may be in.

A note about Silver Stocks:

Unlike Gold and Uranium stocks, Silver Stocks (as measured by index proxy PAAS) have not broken to new highs. Silver stocks perform well when the market backdrop is positive. The failure for PAAS to make new highs may be a sign that the Stock Market and Silver are beginning to Lag the GE�s. In truth I thought the GE stocks would decouple from the Stock Market after a General Stock Market correction. But it seems they aren't waiting around and the decoupling may already be underway. All should be resolved soon. Probably early this week. It would not surprise me to see GE�s confound the Skeptics even more and move FEROCIOUSLY HIGHER...

Hang on to your Hats�

This article is intended solely for information purposes. The opinions are those of the author only. Please conduct further research and consult your financial advisor before making any investment/trading decision. No responsibility can be accepted for losses that may result as a consequence of trading on the basis of this analysis.

For more information on Investing in Australia or on my proposed Closed End Investment Fund, please feel free to contact me.

Contact Information
Greg Silberman
USA
Email | http://blog.goldandoilstocks.com/