Since gold peaked around $725 in May of this year, it has been going through the process of digesting the huge advance that took place a year prior to that peak. At first it was not clear whether or not the gold bull market was over, but, as you can see on the chart below, the initially violent correction transformed into a sideways consolidation in the shape of a triangle. This week, over five months from the May top, gold decisively broke up through the top of the triangle, giving a pretty clear signal that the correction is over.
On the weekly chart below the breakout appears even more dramatic, and there is the added bonus that the weekly PMO (Price Momentum Oscillator) has bottomed. The picture is turning very positive.
With interest in gold likely to increase dramatically as prices advance, now is probably a good time to introduce a new vehicle for owning gold – Central Gold Trust (AMEX: GTU). GTU is a closed-end fund that owns gold bullion (only gold bullion), which is stored in a Canadian bank vault. The fund is run by the same folks that run Central Fund of Canada (CEF), which differs from GTU in that it owns both gold and silver.
GTU began trading on the Toronto Exchange last year, but the chart below shows that it was thinly traded until it debuted on the AMEX in September where volume increased significantly. I think this will probably become one of the best vehicles available for owning and trading gold. It is my understanding that GTU qualifies for capital gains tax, which, for tax purposes, makes it superior to the gold ETFs and bullion. Do not take my word for it – check with your tax professional.
Bottom Line: Our trend model for gold turned bullish on 11/3/2006, and the chart picture looks very good. In my opinion, the correction in gold is over, and the next leg up is beginning.
