As I tought, QE to infinity, Gold this year to 1650$, PEM this year above $1,5, read this:

http://www.stockhouse.com/Columnists/2010/Oct/5/Gold-and-silver--Could-well-be-a-whole-new-ballgam

HUI index is preparing to break out

The most recent COT (Commitment of Traders) report (chart courtesy Cotpricecharts.com), shows the ‘net short’ position of commercial gold traders to be at its highest level since December 18, 2009, (purple bar at far right). In the past whenever the number rose to the level of the last three weeks (300,000 see table at left), a correction soon followed. Not so much because of the large number of short positions (because these will eventually have to be covered), but because of the large number of long positions (blue-grey vertical bars), representing gold that is held for the most part by hedge funds. Many of these hedge funds use computer generated trading programs, which kick in with a domino effect. Once a few begin to take profits, they all try to exit at the same time.

At the present time the price of gold does not seem to be intimidated by the large COT “net short’ number, as in the past. Could it be that the hedge fund operators and large investors sense a possibility that the commercials are ‘on the ropes’? Some of these commercial traders have carried a large short position for many months. All of these short positions are now ‘under water’. Every time gold rises, the holders of short positions have to raise margin money or buy back a losing position. The upward pressure on price is due to fundamentals for gold that are extremely bullish and these include:

• The U.S. money supply is today twice as large as it was just a few years ago.
• The Obama administration is without a clear economic policy – three out of four members of the economic team have just resigned - and the fourth, Tim Geithner, has never held a position in the business world aside from being involved in the banking business at Goldman Sachs. The man can’t even keep correct personal income records.
• Worldwide money supply is expanding at an average rate of 10%.
• The U.S. dollar is in a long-term decline against gold (see chart below).
• The Euro is in a long-term decline when measured in gold (see chart below).
• Gold is rising not only in U.S. dollar terms but also as expressed in a number of currencies – this reflects a ‘flight to safety from fiat currencies.’
• Gold production is declining, despite higher prices.
• It takes longer (due to regulations) to build a gold mine than ever before, and the rising cost of materials and fuel makes it very expensive to build a mine.
• The period between U.S. Labor Day and Christmas is usually the most gold-bullish period of the year. In seven of the last eight years gold rose during this period.
• The expiration of options on August 26th did not have a negative effect on the gold price, compared to options expiration days in June and July. This proves strong underlying physical demand.
• China is buying up local gold production, thus withholding it from the market.
• Russia is buying up local gold production, thus withholding it from the market.
• Gold ETFs are more popular than ever before, drawing bullion away from the market.
• The U.S. gold supply that is stored at Fort Knox has not been audited since 1953 and is most likely all or partly gone. It has either been sold or leased.
• Central banks have stopped selling gold and some have become buyers.
• Gold thrives when ‘real interest rates” (U.S. T-bill rate less CPI) is negative - as now. (People who are earning less than 7% per year on an investment are actually going backwards because of the inflationary effect which is currently 7% and rising.) Gold on the other hand has been rising at an average +20% per year for the past five years. Since 2001 gold has risen 400%.
• Gold thrives during periods of price inflation and we are witnessing the beginning of increased price inflation: Wheat, corn, oats, barley, oranges, cattle, hogs, salmon, copper, iron ore, cotton, sugar, coffee, palm oil, health care, education are just some of the categories that are rising in price.

“Just like street drugs, the more you take the less effective they become. Fiscal and monetary stimulus is now barren, except for its destruction of currencies”. …. Jim Sinclair.

“Kimberly-Clark, as you know, makes toilet paper. And the Federal Reserve makes dollar bills. If I take a dollar bill and deposit it in my bank account, I’m lucky if I earn 0.5%. If I buy Kimberly Clark – it owns big printing presses that print toilet paper – I will earn a dividend yield of 4%, seven times higher.” …Russell Napier

Featured is the U.S. dollar Index. Price has fallen below the neckline in a ‘head and shoulders’ formation at the purple arrow. This pattern sets up a target at 71. The black arrow points to the fact that the 50DMA is moving into negative alignment with the 200D. When that happened in June 2009 the dollar fell for six months. Longer term the dollar has been in a downtrend since 2002 when it was ‘120’ on the index. When the dollar drops, everything expressed in dollars tends to rise, be it oil or gold.

Featured is the weekly gold chart. This chart answers the question: Is gold overbought or does it have room to move higher? The green oval draws attention to the fact that the moving averages are in positive alignment and rising (sign of a bull market). The Blue arrows point to three occasions during the past five years when the RSI become overbought. The black arrows point to three occasions when the RSI became overbought. The purple arrows point to occasions when price became overbought, along with the supporting indicators (blue and black arrows). The green arrows point to current targets where, based on recent history, price will become overbought. The editor of Munknee.com has compiled a list of analysts who have predicted higher gold prices. About 65 analysts are featured in the article. 65 out of a total of tens of thousands of analysts worldwide is a tiny minority. As time goes on this list will grow in number. The predictions range from $2,500.00 to $15,000.00 an ounce. (Yours truly has recommended gold since it was $35 an ounce and is on record in the article at $2,500.00 - $5,000.00)

Here is where a lot of analysts are making a big mistake:

Some analysts have forgotten about the unprecedented mountain of new money that has been created, and they have overlooked the impact of ETFs on mining stocks. If the dollars that have gone into ETFs were available to the mining sector, prices for gold miners would be multiples of what they are today. As it is now it will simply take a little longer for the uptrend to play out. Here are some examples of what can happen to gold and silver mining stocks:

• Mineral Resources 1975 at 0.60c to 1980 at 415.00
• Azure Resources 1975 at 0.05 to 1980 at 109.00
• Lion Mines 1975 at 0.07 to 1980 380.00
• Bankeno 1975 at 1.25, to 1980 at 430.00
• Steep Rock 1975 at 0.93 to 1980 at 440.00

Before this gold market reaches its peak there will be dozens of mining stocks with similar performances and the buying frenzy will equal that of the recent ‘dot-com’ activity.

Already the HUI index of gold and silver stocks is preparing to break out after having been in strong uptrend since the credit crunch of 2008-09 (see blue support line in the HUI chart below).

The pattern is a bullish ‘inverted head and shoulders’ formation (green arrows). A breakout at the blue arrow sets up a target at 850. The RSI and MACD are positive. The 50-week moving average is in positive alignment to the 200-week moving average (green oval), and both are rising. While we do not know precisely when this breakout will occur, we do know that it could occur any day now, and when it does, another group of sceptical investors who have been on the sidelines will become buyers.

For the benefit of those of you who are sceptical that the HUI Index is going to accomplish an upside breakout we present the daily bar chart of the GDX, the gold stocks ETF. The upside breakout has already taken place here. The blue arrow points to a target at 73. Back in April the 50D ‘kissed’ the 200D. That was a very bullish omen.

Now the last question is if you have already PEM or not, this can be 10 Bagger stock, we are approaching fast that moment of HUI and GDX breakout...

GLTA!