Big rally among the gold miners underway

I’ve had some success in the past using the 50/200 day moving averages to predict large moves, chiefly that big rally in the USD a couple of years back when price on the index chart got squeezed between the moving averages.

The same phenomenon has been evident in recent days in the Philadelphia Gold and Silver Index (XAU), which tracks the major producers, as well as the GDX.

We saw that range closing fast last week, culminating on Monday with a mere four point spread, the 200 day MA at 160.46 and the 50 day at 164.56.

Thus:

Chart courtesy of chartwatchers

In these cases the short term support/resistance are so close together that the stock is forced either up or down in a big way, out of that narrow trading range. Those three white soliders, the candlesticks, from this week seem to suggest the trend will be up. Indeed, price vaulted up over 171.

So where do we go from here? The RSI and MACD indicators on that chart were also very well positioned for a short term spike. Nevertheless, I’m bullish on the long term forecast. If you look at the 10 year GDX:$GOLD chart which compares the Philly index with gold futures, we see an almost identical bottom in late ’09 to that of late ’01, when the miners rallied to a multi year high top in ’02 and traded in that range over several years.

With respect to charts, I think the past can be a pretty good indicator of the future when the indicators line up. At least that’s how countless investors who are all reading the same charts think. So in a sense, it becomes a self fulfilled prophecy.

And of course, the rising tide for gold miners – if it’s high and long enough – will float all boats, from the majors right down to the countless junior exploration firms. Hopefully sooner than later.

But this is more a matter of faith. I simply believe that eventually a kind of loony, buy-everything-that-moves gold rush will occur, and on a much larger scale than we’ve seen in the past.

Kb