Finally we can say the 2006 gold correction is over and yes we can prepare ourselves for a next up-leg which could launch the gold price far above the $700 mark next year and maybe even challenging its former old time highs of $850.

In my piece ‘Gold – Close to Break Out!’ of October 27 I mentioned a close above $602 was all what needed in order breaking out to the upside of the down-trend which started early May this year.. Well, we didn’t have to wait for that much longer, we notified our members of gold breaking out on November 01 (Gold - Break-Out!) and gold rallied another $10 the next two trading sessions. So now here we are with gold trading at $627 but many investors are scratching their head wondering why the gold shares are lagging the break-out in gold..

As stated in our November 01 dispatch the gold shares are lagging indeed so what to do from here? Are the gold shares anticipating a correction in gold again? Or will they be catching up with gold anytime soon? Well, good questions so let’s take at the updated gold/HUI charts first and see what they’re telling us:

As this chart clearly demonstrates gold performed extremely well lately rocketing all the way up to $625 up from $575 in just two weeks only thereby taking out its down-trend which started early May this year with force…

So far so good you’ll say but what about the gold shares? Why are they lagging the powerful break-out  in gold over the last three trading sessions? Does it spell a gold correction soon since gold already enjoyed a 9 day rally?

Well, let’s take a peek at the updated HUI chart first:

As stated in our Nov 01 dispatch the HUI struggled in order to take out its 200 dma at 325 Even on a $10 rise in gold the HUI barely moved and that pattern continued towards the end of the week. So what does it tell us? Well, if history could be of any guide then gold shares lagging the price of gold could mean a (small) correction in gold, just the opposite of what happened on October 23 when the gold price  dropped by $10 while the gold shares went up…

Sure enough the HUI’s short term direction will be determined primarily by the direction of gold. Since gold has rallied for 9 days in a row now (it’s longest rally in 20 years), the odds are that gold could face some short term down pressure thereby increasing the HUI’s difficulty to overcome its 200 dma barrier convincingly…Yes, the HUI closed above its 200 dma on Friday November 03 (327 vs 325) but still not convincingly… Yes, the gold correction of 2006 is over but that doesn’t mean gold finds itself in a one way street.. As said before gold rallied already for 9 days in a row (its longest rally in 20 years) and the gold shares a bit overbought so investors out there waiting for a TA justified entry point could consider themselves to wait for the technicals to have reversed themselves from current slight overbought conditions. It’s too early to tell if the current HUI 325 level will hold as support or not..    

Members shouldn’t be worried about waiting for a perfect entry point since our Discovery TOP 10 does lead the HUI by great margin, a fact which is demonstrated beyond any doubt since our Discovery TOP 10 clocked a new impressive high of +550% vs a gain of +350% just one month ago. We already issued three break-out alerts of three of our Discovery TOP 10 stocks over the last two weeks and more will follow soon..