Apr 12, 2007

Enrico Orlandini: gold is on the threshold of an explosive move to the upside

"Gold is one of my favorite subjects and I can never get enough of it. The June 07 Gold futures contract went into the Easter holiday at 679.4 and that is a new closing high for this leg up. Some months back I advised you that gold was going to a minimum of 775.0 before we would run out of steam and nothing has changed my mind. I also told you that we would have two 7% corrections and that is just what happened. Now I am going to tell you that gold is on the threshold of an explosive move to the upside; the type of move where you could see an advance of 100.0 within a seven to ten day period. We have overcome good resistance at 667.1, 672.5, and 687.0 is the next target followed by a test of the significant Fibonacci resistance at 696.0. It was this resistance that turned back the last rally but I don't think it will stop gold this time around. Here are the magic Fibonacci numbers with respect to the June 07 gold futures contract:
GOLD'S SUPPORT GOLD'S RESISTANCE
623.3 696.0
649.3 721.7
672.5 746.3

The 775.0 resistance number I referred to earlier is with respect to the spot price for gold and it should be enough to stop the current leg up, but that doesn't mean that it will. As usual, I like to put gold's activity into perspective and the best way to do that is to view the historical chart:

This entire rally is nothing short of spectacular and what is even more fascinating is that the best is yet to come. You can see the May 2006 high of 732.0 and we are now within shouting distance ten months later. If there is one thing that makes me believe that we could go higher than 775.0, it is the fact that we have been consolidating gains for ten months. That could/should provide a powerful base for rally that may go well beyond 775.0 and could even challenge the all-time high at 882.5 but we'll just have to wait and see.

Silver, and to a lesser degree gold stocks are following in gold's footsteps. The May Silver futures contract closed up 12.0 at 1374.0 on Thursday and that is a new closing high for this leg up. Like gold, silver has a set of important Fibonacci numbers as well. They are as follows:

SILVER'S SUPPORT
SILVER'S RESISTANCE
1,328.1
1,389.6
1,358.7
1,423.6
1,456.0

In all honesty, I see more upward potential in silver right now than I do in gold and the following P & F chart for silver tends to agree with me:

We have a bullish price objective of 21.5 and that is slightly above my 20.73 objective and more than 40% above Thursday's close. Silver appears to be leading gold at this point in time while gold stocks appear to be following both; or maybe dragged would be a better word. On Thursday the HUI closed down 1.87 to end the week at 354.15 and that is just below good Fibonacci resistance at 354.84. There is good Fibonacci support at 351.59 and 336.11. I have been vacillating about the future of gold stocks to the point that I sold 25% of my portfolio some weeks back. I still hold the same portfolio that I bought in September 2004 and it is as follows:

BUENAVENTURA (BVN) = 20%
COEUR D'ALENE (CDE) = 5%
GOLDCORP (GG) = 15%
NEWMONT (NEM) = 10%
ROYAL GOLD (RGLD) = 20%
SILVER WHEATON (SLW) = 5%
CASH = 25%

Actually the cash component is a bit misleading as I used it to but gold on the futures market. Take a look at the following weekly chart of the HUI:

I have been wondering for weeks now if the HUI will follow gold up or the Dow down. As of today I do not have a definitive answer but as you can see above, the HUI is being compressed into a tighter and tighter range with a series of higher lows and lower highs. We are coming to a crucial moment in time where there will be a breakout in one direction or the other. Given the fact that this is a bull market, the odds heavily favor a breakout to the upside but the fly in the ointment could be the Dow. If the Dow rallies until mid-June than I suspect new highs will be made but if the Dow turns down this week, it might be a different story. We'll just have to wait and see. In the meantime I am long gold, silver, and gold stocks and that will not change."

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