Gold market bottoming;
speculative stocks poised for takeoff
It is becoming more and more evident with each passing week that the
gold market, along with commodities in general, have seen a bottom and
will continue to consolidate or move higher in the weeks and months
ahead. Even more impressively, the speculative gold stock sector that we
have been watching closely since last October appears ready to launch a
new bullish phase which should give the Internets a run for their money.
We will not venture a forecast on the physical gold market at this
point—the chart is still a bit amorphous and even the price-to-volume
ratio is subject to interpretation. Suffice it to say the 15-month long
sideways consolidation pattern continues and until we see a decisive
breakout in either direction we will withhold comment. Our main area of
focus to support our bullish outlook is the XAU precious metals stock
index which has etched out a chart formation strongly suggestive of a
reversal—a rounding bottom pattern.
Technical analyst P.Q. Wall, the pioneer of the "bowl theory" of
technical analysis and editor of the P.Q. Wall Forecast, highlighted the
striking reversal implications of the XAU in a recent newsletter. The
XAU price pattern has formed a bowl pattern, which strongly implies a
move higher that should roughly follow the side of the bowl. This same
pattern can be seen in numerous gold and silver stocks, especially the
more speculative ones.
Among the many gold stocks with bullish chart patterns is Aber Resources
Ltd. Aber bottomed late last year and has since begun to move higher on
increased volume—a bullish sign. Subsequent pullbacks have been on
diminished volume, which also points to the upside bias in this stock.
Altai Resources is a gambler's play due to its low liquidity levels.
However, an exceedingly bullish development last month points to a
bullish trend underway in this stock. Specifically, volume spiked in
March during its bottoming phase, only to spike again last month while
pushing prices sharply higher. There is obviously a strong interest in
Altai, and at only $0.5/share it is an extremely inexpensive play; but
keep your eye on the exits as liquidity is very low.
Our old favorite, Argentina Gold, continues its impressive bull run
which began last fall. The goldest of the gold stocks, Argentina's tape
confirms its strong internal strength. Take a look at a piece of the
tape from a recent trading week: $7 on volume of 210,400, $6.75 on
volume of 52,900, $6.85 on volume of 409,800, $6.95 on volume of
411,300, $7.1 on volume of 578,800, and $7.25 on volume of 589,300. Note
the tendency for higher prices on expanding volume and lower prices on
contracting volume—a bullish confirmation. Keep your holdings in this
wonderful performer.
A gold stock that has lately come to our attention and is worthy of the
consideration of gold bugs everywhere is Latitude Minerals. This stock,
which trades on the Vancouver Stock Exchange, has seen a consistently
strong performance over the past few years and has proven to be a
profitable investment over the past few months in particular. A recent
survey of the tape yields the following: $0.4 on volume of 25,500, $0.46
on volume of 89,000, $0.44 on volume of 48,300, $0.48 on volume of
58,500, $0.45 on volume of 34,300, $0.46 on volume of 114,200 and 0.41
on volume of 3,500. As can be seen, this behavior is indicative of
underlying buying strength with most of the upside volume going with
higher prices and most downside price movement coming on extremely low
volume. The tape tells us that Latitude is being accumulated.
Other gold stocks with charts that stand out as being bullish include:
Goldcorp Inc., Gulf International, International Pursuit, Jordex
Resources, Latingold, Santa Cruz Gold, and TVI Pacific.
Clif Droke
6 May 1999
Clif Droke is editor of the weekly Leading Indicators newsletter,
covering the U.S. equities market outlook from a technical perspective
as well as the general economic outlook. He is the author of the
recently published book, Technical Analysis Simplified. For a free
sample issue of Leading Indicators, send name and mailing address to
cdroke@pf.com or mail to: Leading Indicators, 816
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