Early days

Using the method that helped him predict gold's parabolic rise from November 2005 to May 2006, Adrian Douglas of Market Force Analysis has discovered massive buying of options, expiring in December or later, on gold, silver and 15 major gold stocks. The number of calls outstanding far outstrips the number of puts, leading Douglas to conclude that the smart money has positioned itself for a "massive upleg" in the precious metals.

Another analysis by RBC Capital Markets shows that since 1984, in 22 out of the 28 cases when the ratio of the XAU index of gold and silver stocks to the price of gold fell within the current range, a positive return would have been earned by holding those stocks for a year. The average return was 27.3%.

Ross Clark of Institutional Advisors reminds us:

Seasonal Tendencies favor a rally in stocks into September-October. In the past ten years the precious metal indices (XAU, HUI, TSX Gold) have rallied well from July through September-October. A closer analysis shows that the rally from August 17th should take 6 to 7 weeks, providing a time window for a high during the weeks of September 27th to October 5th.

On the other hand, Brian Bloom says he'll remain unconvinced the current rally in gold is the real thing until its price breaks through $715. Until then, he argues, gold runs the risk of forming a bearish double top on the point-and-figure chart. He notes that the price gapped up at the beginning of September and says the probabilities favour a pullback, declaring ominously:

Looking back to 1985 there is not one single gap on the monthly chart that has not been covered in the past 22 years.