All Eyes Are On Huey! Peter Degraaf Posted Tuesday, 12 May 2009
The HUI index is poised to break out above 350. The importance of this breakout is evident in the following chart.
Featured is the daily HUI index of gold and silver stocks.
In the event of a breakout at the green arrow (which now appears to be underway), the result will be a very strong ‘up-move’ as all that pent-up demand below 350 becomes unstuck. The pattern is an inverted ‘head and shoulders’ formation with the neckline at 350. The RSI and MACD are positive (green lines). Assuming the breakout succeeds - the target is 550!
On the fundamental side, we have a US government deficit that is clearly out of control. In the words of William Black, associate professor of Economics at the University of Missouri: “We have ‘failed bankers’ giving advice to ’failed regulators’ on how to deal with ‘failed assets’”.
The US Budget Office estimates the 2009 budget deficit at 1.8 trillion dollars or four times the 2008 record deficit. We’re talking ‘monetary inflation in spades’! While it can be said that it takes time for monetary inflation to turn into price inflation, you can be sure that more and more investors are going to anticipate whopping price inflation. Such price inflation will result in increased demand for gold and silver, and the stock of companies that produce gold and silver.
Even at 1.8 trillion dollars, the US Budget Office is making certain assumptions regarding tax receipts. It is the ‘nature of the beast’ that during a recession, not only do tax receipts decline, but the demands on government on the part of unemployed persons increase dramatically. Think of the letter “Y”, with the tops of the Y rising steadily. One side is less revenue and the other side is increased demands. ‘Never the twain shall meet.’
DISCLAIMER: Please do your own due diligence. I am NOT responsible for your trading decisions.
Happy trading!
Peter Degraaf.
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at http://news.goldseek.com/GoldSeek/1242154232.php
