HUIII howls the gold bull

Increasingly I’ve been receiving inquiries during the last weeks asking me to examine the pitiful situation of the mine stocks. I really like to fulfill those questions, above all because we can always extract some derivations and findings for gold and silver from the possible future development of the miners.

The NYSE Arca Gold BUGS Index, better known as HUI comprises the stocks of international gold manufacturers. The weighting of the index occurs according to the market capitalization picturing the value development of the gold stocks listed in the New York Stock Exchange, NYSE Amex and NASDAQ.

In the actual monthly 8 Candle GUNNER24 Up Setup we recognize that the last buy signal was produced in November 2010. The first double arc was broken significantly there, and thus the next target being the lower line of the 2nd double arc was activated. In September 2011 jointly with gold the index topped exactly at the lower line of the 2nd.

The September 2011 candle shows a long upper wick, a spike-candle pointing to the exhaustion of a trend. From my point of view, on the one hand most eye-catching is the most seldom shaping of the lower support of this topping-formation. Altogether four times the monthly lows spiked down from the lower line of the first double arc in 2011, depicted visibly by the green ovals.

Thereby these four monthly lows at the lower line of the first created an extremely strong support that was broken now by the March close. It’s a strong sell signal on monthly basis being able to lead to the situation that the actual April candle wants to sell off during the whole month and to close at the monthly lows!

Something else that doesn’t happen frequently is the long duration of this topping process. From the first touch of the monthly support to the fourth touch with the lower line of the first it took a whole year – then two or three more months were added until the final break of the monthly support. So it was about 12 to 14 months all in all. According to an old trader rule now we’ll have to work on the assumption that the index will want to correct just those 14 months or half the time – 6 to 7 months – before the final temporal low of the actual down-swing will have been found.

On balance all that doesn’t mean anything good for the precious metals!

In the setup above, inter alia the first two price targets for the actual down leg are sketched in. The first target is at the next important monthly support Gann Angle at 417. But more likely the HUI is going to head for the strongest monthly support at 405. That’s where at the latest the first leg of the actual decline is expected to come to an end. From there a counter-move during 1 -3 months is supposed to start before the area of the first important low will be tested. In an extreme case then the lows at 405 will be broken downwards and the 1*1 at 330 will be aimed for. October 2012!!

Let’s put now the actual 2 Candle GUNNER24 Down Setup above the up setup in order to check the 417, the 405 and the 330:

So we see that the March 2012 candle is falling below the blue arc and the lower line of the first square with its close. A sell signal in this setup as well. First down target now is the first double arc! The upper line of the first double arc is lying exactly at the support Gann Angle at 417. The lower line of the first is lying exactly at the 405 support. Both marks – 417 and 405 – are important magnets in the down setup, too. The congruence of the targets in two different setups in the same time frame makes them so much the more important because thereby their magnet function is confirmed.

In case the first double arc is broken on closing price basis, i.e. a monthly close below 405, the next lower double arc in the down setup will be activated. With the 1*1 angle, the blue arc from the up setup and the 2nd double arc of the down setup there at 330 the most important confluence area of this decline is there.

The 405 is supposed to be the most important magnet in the HUI. If no significant rebound happens from there during the next two weeks not only for the mines but also for gold and silver things will look pretty grim. Grim it will look above all in prospect of the further duration of the actual correction which in that cased is expected to last long into the summer 2012. The keyword is summer doldrums.

Gold:

For the actual gold assessment this time two GUNNER24 Setups and one Gann Angle are sufficient: On closing price basis gold maintains the 2008 support Gann Angle turning up again next week or not turning up. A weekly close below the 2008 support Gann Angle next week – below 1625 – would provide the confirmation that long into August gold is not going to be on a sound footing any more. In that case the down targets will be at first 1567 and then the December 2011 lows most likely followed by the 1450-1470 area during the summer doldrums. There’s a strong monthly support at 1460.

In which scale next week is going to be indicative is shown by a down setup we can apply in the weekly time frame at the all-time high:

The closing price of next week will show us the way. Either the blue arc will resist as it did in December 2011 driving gold up again by producing a white candle that closes above the blue arc or gold will most likely work off the down targets above mentioned during the coming months.

You see, the closing price of next week will reveal which forces want to go on dominating in the long term. A weekly close below the blue arc would show us whether the down-forces, the down-trend, the bears will prevail obliging us to expect more lower weekly highs or the up-forces, the upwards leg starting at the December 2011 lows will want to dominate the coming weeks. The first sign for that will be a weekly close above the blue arc AND the 1*1 Gann Angle that has been clearly driving gold down for 4 weeks after all.

Silver holds out better than gold

Silver doesn’t react that severely to the FOMC protocol as gold does. Its decline is well-ordered. It’s not a brutal would-be sell-off as in gold. The reason is on the one hand that silver isn’t given special emphasis as a tool for protection against inflation but rather the industrial demand is what counts on the parquet.