An Optimistic Gold Bull Makes The Technical Case

As based on technical analysis, this article by "NuWire Investor" makes the case for accumulating gold. The nub of the case is:

Gold is firming up a bit here at the same time the dollar is showing strength. Gold is sitting in the lower range of a multi-week consolidation pattern, which suggests gold is a buy right now. Until we bust out of this range in either direction, I will use all pullbacks in gold to add to positions.

The author is bullish on both the U.S. dollar and gold, and believes that both asset classes rising signals a new phase in the gold bull market. Particularly recommended are gold stocks: the author says that the Amex Gold Bugs Index (HUI) is undervalued with respect to gold itself, and the cost squeeze that hampered gold shares back in '07 will not be manifest itself again for a long time. The economy is in too bad shape for the squeeze to come back.


Another technician, Graham Summer, has drawn a completely different conclusion from the charts. After looking at gold's price in Euros, Yen and Swiss Francs, he concludes that the metal has double-topped in all three currencies. With respect to the yen, gold's already lower than the low established between its two tops. In the two other currencies, it's close.


As is usual when an investment's direction is uncertain, we have cases that can be made for both sides. Given the strength in the U.S. dollar, one of them has to be wrong. Gold can't rise in a stronger currency while falling in a weaker currency.