HUI Gold Stock index: chart and comments on 8 May 2012

The HUI is reeling once again as it continues losing value against the price of an ounce of gold bullion. The index has fallen below chart support at the round number of 400 and is currently near the lows of the day as I write this.

As you can see from the following chart, it is approaching what I consider to be one of the most significant levels of chart support from a technical analysis perspective, and that is the critical 50% Fibonacci retracement level.

The mining shares as a whole, have now retraced exactly HALF of all their gains from the bottom that was produced back in late 2008 when we got the first round of QE that was used to buy up all those “wonderful” mortgage backed securities.

If the index is going to bottom, it will bottom here and now or else it is going to experience a washout that could possibly take it down towards the 340 level at which point the shares will either reverse or basically end up back where they started from in 2008.

Keep in mind that value-based buyers are now a definite minority when it comes to investing. Actually we have very little investors left in the markets as they are all becoming traders thanks to the hedge fund crowd which in effect, has become the market.

This the reason why we cannot as of yet see a bottom in the mining shares, no matter how inexpensive they become in comparison to bullion and in spite of some very good profits being reported by some specific firms.

The hedgies are using them as the short leg of that same ratio spread trade which has been their bread and butter in the gold sector for the last two years. When they finally are forced out, that will be a sight to see but for now, they continue to overwhelm the value-based buying that is occurring in this sector.

 

Notice the last chart showing the CLOSING MONTHLY PRICE  – back at levels last seen at the very inception of the gold bull market in 2001!
Author: Trader Dan

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