Gold Flag Flies at Half Mast

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In technical analysis, no price pattern implies a more violent move to the upside than a flag pattern.

Please click here now. There’s a flag pattern in play on this gold chart, and it implies that a 2nd near-vertical jump could occur very quickly.

Today, G7 politicians and central bankers are holding a key telephone conference call amongst themselves to battle the crisis in Europe. Public statements made after that phone call is completed could be the catalyst that activates this pattern.

Gold stocks look even more powerful than gold. Please click here now. You are looking at a weekly chart of gold versus GDX (gold stocks). Against the dollar, gold looks powerful. Against gold stocks, gold looks terrible.

There’s a rare island top formation on that chart, and almost every indicator and oscillator is on a sell signal.

If gold is potentially ready to maul the dollar, what is the potential for gold stocks?

Please click here now. That’s a daily chart of GDX, and you can see a head & shoulders pattern is present. The head itself is a small h&s pattern, which is very bullish.

Against the dollar, GDX seems to be signaling it will rise to about $56. The right shoulder low could occur at around $45. Given the background of the flag pattern on gold and the G7 “emergency” conference call, it’s possible that there is no pullback at all.

GDX also seems set to outperform the Dow. A week ago I suggested the Dow could crash against gold stocks, and a quasi-crash has occurred. Please click here now. The uptrend line is broken. Most of the indicators are signaling that the Dow could decline much further against gold stocks.

I realize that the idea of gold stocks “outperforming everything” seems almost impossible at this point in time, but the most dramatic market moves tend to occur when most investors have given up on their dream.

Friday’s jobs report was a disaster. Many institutional money managers called it a “game changer”. Oil prices have suffered a severe decline. The price of oil appears to be trading in almost perfect lockstep with the Dow.

“Crude oil prices have plummeted 20 percent over the past three months, but the CEO of Europe’s biggest oil company Royal Dutch Shell, Peter Voser, doesn’t think global demand is “collapsing.” He, however, expects further downside in oil prices in the second-half of the year as the market is well supplied.” ~ CNBC News, June 5, 2012

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