Nervous Gold Bugs (2)

If you’re a gold bug and you own a basket of gold stocks you have to wonder what is wrong with the group. On June 18 the price of gold touched another all-time high and yet most of the gold stocks as represented by the AMEX Gold Bugs Index once again failed to confirm the move. In a previous post I detailed the structure of the current secular uptrend in the gold complex and illustrating why we are now into the 5th bull in the series that began in mid 2000. We also know in the later stages of a secular advance the participants will splay or exhibit typical 5th Elliott Wave failures basically meaning fewer and fewer will post new 52-week highs.

Now that does not signal the end of the secular up-trend in the gold complex because we could experience a maximum of 7-cycles (two more to go) – BUT – these cycles tend to be of shorter duration and of less price magnitude. There are several ways to play this aging gold cycle game. One way is to follow the money as it moves in and out of the key gold and silver producers. Our daily chart is of the weekly closes of Barrick Gold plotted above the weekly closes of Silver Wheaton. Note the large inverse head & shoulder pattern on each stock. Note the Silver Wheaton break above the neck line in late 2009 and note the failure of Barrick to break up through the neck line. Clearly we need Barrick to clear $50 to confirm the breakout – it is now or never and if Silver Wheaton rolls over and breaks under $18, the 5th-cycle is completed.