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IMPORTANT JUNCTURE FOR GOLD/XAU/HUI

The current chart patterns of gold/XAU/HUI suggest that the price action of the past 90 days will turn out to be either a double top, or a bullish consolidation. In either case, the bullish/bearish resolution appears to be 5-15 trading days away, and it ought to result in a 75-100 point move for the metal, and in a 25-35 point move for the XAU. See charts and comments below:

(GOLD) If the pattern turns out to be a double top, the minimum downside objective is $525 and the maximum is $480. If the pattern turns out to be a "bullish flag," the minimum upside objective is $675 and the maximum is $750.

(HUI) If the pattern turns out to be a double top, the minimum downside objective is $280 and the maximum is $240. If the pattern turns out to be a bullish "ascending triangle," then the minimum upside objective is 400-405.

(XAU) If the pattern turns out to be a double top, the minimum downside objective is $132-130 and the maximum is $112-110. If the pattern turns out to be a bullish "ascending triangle," then the minimum upside objective is 172-175. See charts below:

In our view, the odds are in favor of the bullish outcome because most of the data are giving either neutral readings, or slightly bullish ones. See below:

1. The US dollar is struggling to stay above 84. If it breaks below 84 over the next 5-10 trading days, it will signify the beginning of another leg to the downside with 80-78 as the objective. A 5%-7% decline in the US dollar will be beneficial for gold and gold stocks.

2. The gold/xau ratio is currently at 4.4, which is a neutral reading.

3. The BUY/SELL Equilibrium Index for the XAU has been rising in tandem with price, which means buying interest has been expanding as price has moved higher.

4. The Thrust Oscillator has been making higher lows confirming the rise in price, and at the same time it appears to be on the verge of a positive cross-over which would indicate the kick-off of another leg to the upside. 

5. Despite the decline of the past few days, the actual overall trend is still neutral.

6. The Volume T.O. has been making higher lows, confirming the rise in price and indicating that buying interest has remained strong.

7. Last but not least, SEASONALITY strongly favors gold/gold stocks. Historically, September has been one of the best months for gold/gold stocks. Take a look at the chart below. Notice that for the past 5 consecutive years the price action in gold/gold stocks has been characterized by a modest rise during the first half of August, followed by a shallow decline lasting until the end of the month, which in turn is followed by a robust rally that starts during the first 5 trading days in September. It lasts throughout the entire month, and its magnitude is between 20%-30%! If seasonality plays out this year as it has in the past, the XAU has the potential to rally to the 172-175 level in just four weeks time.

Summary

If seasonality plays out this year in the same manner as it has in the past, we should see a bottom in gold/gold stocks this week and then a rally that will carry the XAU near the 170 level during the month of September. Yesterday's close above 145 has put us on a "bullish alert" looking for a close above 150 for confirmation. If the XAU closes above 150 and stays above 150, it would mean that in all likelihood we've seen the best in terms of the major indices; now it's time to start moving out of the major equity indices and into gold and gold stocks.

On the other hand, if for some reason the bullish scenario doesn't play out this year, then we should see a close below 136/135 some time next week, followed by a close below 130 within 2-4 trading days.

Ike Iossif

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