Strategy for a gold bull market

Exactly two months since gold broke out of its 15-month-long triangle on Sept. 4, the day this blog was launched, the yellow metal remains in a powerful bull leg, even if it's beginning to look a bit overextended.

Price is nearly 20% above the 50-week moving average, which has provided support since the beginning of this bull market in 2001. RSI, above 78%, is at levels at which corrections or consolidations have begun in the past, as is the MACD histogram. Both indicators continue to rise, however, so the long-term trend remains bullish.

Any significant dips would therefore present buying opportunities.

On the daily chart, gold is near the top of the channel and could pause here for a consolidation. A return to the bottom of the channel would be a good buying point. If, however, price breaks out through the top of the channel, that could represent the start of a parabolic rise that might not be sustainable for long.

Silver has begun to show signs of life since bouncing off support on Thursday.

GDX, too, is looking lively, recovering from its drop Thursday to reach an all-time-high close of $50.71 on Friday.

The gold-mining ETF has shown significant relative strength against the S&P 500 index since the middle of October, indicating that money has begun to flow into precious-metals stocks as other sectors experience weakness.

Alf Field suggests that the point of recognition, when the public realized gold is in a bull market, was reached last weekend. He says:

The Point of Recognition generally occurs about midway through a major move and is a useful guide as to the remaining length of the move underway.

Meanwhile, the U.S. dollar index resumed its decline after a one-day pause, closing at an all-time low of 76.26 on Friday. RSI is indicating that the dollar is oversold, but that doesn't mean it can't become even more oversold in the short term. $USD could still bounce at any time before continuing its secular decline — which could take the dollar to much lower levels, now that it has broken long-term support around 80.

Our strategy during the remainder of this bull market will be to hold a core of physical gold and silver plus the stocks of selected miners and explorers with proven resources. A second pool of more speculative stocks will be traded from time to time, along with exchange-traded options.