A Few Gold Stocks Looking Very Promising

As the market continues to struggle to find its footing, I have been focusing my attention to the gold and silver sector which I have been accumulating for the past 4 months.  I want to share a few of these findings with you as I believe that they present a tremendous risk/reward opportunity for the months and years ahead.

Gold and silver continue to show relative strength to the broad markets and appear to have decoupled from the broad markets.  I find it especially bullish that the gold stocks are leading the physical metal in this advance off the October lows.  Many of these stocks that I picked up are up 100 to 300% off their lows so you may ask, why now?  Well, I believe that have another 500% to 1000% in them over the next 24 months. 

Here's the fundamental case for commodities (Especially gold)

1)  The federal reserve has pumped trillions of dollars into the US economy in their effort to curb the crisis.  This will only get worse as the administration socializes American industry and the housing crisis deepens.  And yes, it will deepen.  Interest rates are in the 4.5% region and demand is not shoring up as the government had intended.  There is no demand in the real estate market and defaults will only get worse going into 2010 and 2011 as CMBS and Neg Am will become the next sectors to melt down.  What will the Fed do then?  Pump another 2 trillion of US taxpayer dollars into irresponsible behavior?  We should all be very concerned about what is going on.  However, gold bugs, your dream will come true.  INFLATION will eventually(were battling deflation right now) hit the fan and our greenback will be damn near worthless.

2)  China and the rest of the world are starting to express their concern about inflation.  Remember, China and Russia are basically our landlords.  They have invested trillions into treasury securities that the US govt. is on the hook for.  A mass exodus out of the traditional safe haven securities could be the last straw that breaks our back.

From a technical standpoint, gold stocks have basically decoupled from the general stock market.  They have been in an steady uptrend ever since the baby was thrown out with the bathwater back in October.  The strength in the dollar has not even affected gold.  The situation has transitioned into a flight to safety and even though consumer demand is down, investment demand continues to strengthen.

We have seen a great correlation between the price of gold equities relative to the price of gold.  As gold stock investors, this is what we want to see, leadership. 

From a technical perspective, a few gold stocks have put in massive 6 month bases which are being broken right now.  There are others which have been running in earnest and do not seem to have any substantial pullback in sight in the near term.  As a gold stock investor, you must remember that there is company specific risk as many of these mines are in foreign countries which carry their own geopolitical risks.  Additionally, these stocks tend to swing violently.  The key is to be able to know when these stocks are trending and ride the wave, ignoring the wiggles.

Let's review a few of my more speculative favorites: 

CDE was washed out late last year down into the .36 region before find its bottom and running up nearly 300% as of today's close.  CDE has put in a size able range bound base which shows all the bullish volume indications that we want to see.  I believe a bigger breakout is on the way.  First stop is 2 bucks.

GSS is my favorite.  The classic head and shoulders bottom setup is perfect on this chart and I believe a breakout upside is imminent.  1.85 is the level we want to see broken and broken with volume.  If that happens, 3.25 is my first target.

NXG is another good looking speculative junior minor sporting a bullish setup.  Notice the inverted cup and handle setup which is similar to GSS, but not quite.  Looking for a breakout above 1.50 to signal a move higher. 

I also like some of the middle market players in this sector, this would include AUY, SLW, SSRI.  From a large cap perspective, you cant go wrong with GG and AEM