Despite the likelihood that most gold stocks will rise during the next couple of months and more, some, for example, perform better when the going is good and vice versa.
The current economic conditions are, in substance, very similar to that of the Great Depression. The pattern that is being followed, suggests that the next big event in this economic crisis, will be an acceleration of the increase in the price of gold, as well as a significant rally in gold stocks, despite economic decline.
Gold appears ready to make the $2000 level its new home. Below, is a gold chart, which I featured in my 6 October gold update to my premium subscribers:
The drop in price, at the end of September, was just a re-test of the upward sloping resistance line. According to my fractal analysis, the crossing of this line starts a new phase in the gold bull market, where prices are expected to trade in a more bullish channel. This period is similar to that of August/September 1979 to January 1980.
Significantly higher gold prices can be expected over the next couple of months and into 2012. This, and other ideal economic conditions, set the stage for gold stocks to shine. Based on my analysis, it appears that gold stocks are indeed about to rally, just like the Great Depression pattern suggests. In order to achieve maximum benefit from this rally, it is important to choose the right type of gold stocks.
Despite the likelihood that most gold stocks will rise during the next couple of months and more, some, for example, perform better when the going is good and vice versa. In my previous gold stocks article I presented the following chart (from finance.yahoo.com):
It illustrates how the South African gold stocks underperformed the Amex Gold BUGS Index (NYSE: HUI, Stock Forum) significantly, since 2001. Those who would have invested in the South African gold stocks in 2001, would have missed out on the big gains made by the non-South African HUI stocks. This is another example of how some stocks perform better or worse, depending on the conditions.
My current research, however, favours South African (SA) gold stocks over other gold stocks, for this next rally. The current and coming conditions are an ideal set-up for these stocks. Again, it is important to ask which South African gold stocks. My analysis (fundamental and fractal analysis) of the economic conditions, as well as the expected levels of the ZAR gold price and energy cost, which affects SA gold mines, helps me to choose the ideal ZAR gold stocks for a particular time.
Currently, I favour the ones that do well when the going is good. Below, is a chart that compares the price of Anglogold Ashanti Ltd. (NYSE: AU, Stock Forum) with that of DRDGold Ltd. (NSC: DROOY, Stock Forum):
DRDGold, is a good example of a gold stock that performs well when the going is good for SA gold stocks in general. On the chart, I have highlighted (with yellow) the last period of ideal conditions for SA gold mines; during which, DRDgold significantly outperformed Anglogold. Since then (about May 2002), conditions have not been that great for the SA gold mines, therefore, Anglogold has mostly outperformed DRDgold. It appears we are currently entering a period where DRDgold is likely to outperform Anglogold.
The HUI is set to spike, and break out at the all-time high level soon. Below is a long-term chart of the HUI:
The 500 area has now been successfully tested, and HUI looks set to rally over the next 4 months (at least). We could see the 800 level reached as minimum.
