Since gold peaked around $725 in May of this year, it has been
going through the process of digesting the huge advance that took place a year
prior to that peak. At first it was not clear whether or not the gold bull
market was over, but, as you can see on the chart below, the initially violent
correction transformed into a sideways consolidation in the shape of a triangle.
This week, over five months from the May top, gold decisively broke up through
the top of the triangle, giving a pretty clear signal that the correction is
over.
On the weekly chart below the breakout appears even more dramatic, and there is
the added bonus that the weekly PMO (Price Momentum Oscillator) has bottomed.
The picture is turning very positive.
With interest in gold likely to increase dramatically as prices advance, now is
probably a good time to introduce a new vehicle for owning gold -- Central
Gold Trust (GTU | news | PowerRating | PR Charts ). GTU is a closed-end fund that owns gold bullion (only
gold bullion), which is stored in a Canadian bank vault. The fund is run by the
same folks that run Central Fund of Canada (CEF | news | PowerRating | PR Charts ), which differs from
GTU in that it owns both gold and silver.
GTU began trading on the Toronto Exchange last year, but the chart below shows
that it was thinly traded until it debuted on the AMEX in September where volume
increased significantly. I think this will probably become one of the best
vehicles available for owning and trading gold. It is my understanding that GTU
qualifies for capital gains tax, which, for tax purposes, makes it superior to
the gold ETFs and bullion. Do not take my word for it -- check with your tax
professional.
Bottom Line: Our trend model for gold turned bullish on 11/3/2006, and
the chart picture looks very good. In my opinion, the correction in gold is
over, and the next leg up is beginning.
Be prepared to adjust your tactics if conditions change.
Carl Swenlin is a self-taught technical analyst, who has been
involved in market analysis since 1981. A pioneer in the creation of online
technical resources, he is president and founder of
DecisionPoint.com, a premier
technical analysis website specializing in stock market indicators, charting,
and focused research reports. Mr. Swenlin is a member of the
Market Technicians Association.
