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Welcome to Profit Confidential • Tuesday, May 22, 2012

Gold Buying Opportunity Could Be in the Cards

Monday, April 23rd, 2007
By George Leong, B.Comm. for Profit Confidential

Gold recently made a strong uptrend, with the June gold futures on the COMEX rising from $620.00 at the start of the year to just below $700.00 on February 27. After failing to break $700.00, June gold has retrenched back to some support at $640.00. However, it has since begun another rally toward $700.00 after trading at an intraday high of $693.30 on April 16.

 The ability to hold at the $640.00 support was followed by a bullish double-bottom formation on the chart, and a subsequent rally. On charts, always be on the lookout for double bottoms, as these are decent reversal signs. Make sure the second decline, or bottom, is higher than the first bottom, otherwise we could see a downward move.

 The near-term technical picture for the June gold is bullish, yet overbought, given the recent buying, so we could see some near- term selling pressure.

 The June contract broke back above its 20-day and 50-day moving averages (MAs) of $673.70 and $670.70, respectively. The June gold is well above its 200-day MA at $648.40.

 The positive sentiment in gold is related to increased geopolitical risk in the Middle East, the recent selling in China, and people using it as a hedge against potential inflation. Some weakness in the U.S. dollar against other major currencies also makes gold cheaper for foreign buyers, since gold is quoted in U.S. dollars. Also, the recent market concerns had some investors locking up gold positions.

 Given the current world uncertainties and the constant threat of market shocks, gold continues to gain in strength as a safe-haven investment.

 Going forward in the near term, I do not advise chasing gold higher, but waiting to see how strong the momentum is and if $700.00 could be broken.

 If you miss this surge, you may have another opportunity to enter into positions. Based on the chart, there is a potential buying opportunity between $600.00 and $620.00, should the June gold fall that far. It is clear that the bias toward gold is to buy on dips.

 Gold companies that you should focus on are those that do very little forward hedging. Small-cap gold stocks with promising reserves and output could also be of interest, due to the possibility of industry consolidation. One of our favorite mid-tier gold stocks is Yamana Gold, Inc. (NYSE/AUY).

 

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Profit Confidential AuthorGeorge is a Senior Editor at Lombardi Financial, and has been involved in analyzing the stock markets for two decades where he employs both fundamental and technical analysis. His overall market timing and trading knowledge is extensive in the areas of small-cap research and option trading. George is the editor of several of Lombardi’s popular financial newsletters, including The China Letter, Special Situations, and Obscene Profits, among others. His trading advice on stocks and options is also found on his daily trading site, Daily Profits. He has written technical and fundamental columns for numerous stock market news web sites, and he is the author of Quick Wealth Options Strategy and Mastering 7 Proven Options Strategies. Prior to starting with Lombardi Financial, George was employed as a financial analyst with Globe Information Services.

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