Greg Guenthner

Over the past week, gold has gone from zero to hero, breaking off an $80 run in just five trading days.

I’ve been bearish on gold since earlier this year. But I think this move could have legs. In fact, gold stocks might even move significantly higher before we finish out the year.

Here are the clues indicating gold might be undergoing a change of character:

1. Fakeouts lead to breakouts

On Oct. 15, gold futures plummeted to a low of $1,251. This drop signaled a clear break below critical support at $1,275. That morning, it looked like the floor was about to drop out. I suspected gold futures would soon test their late June lows of $1,179…

That’s when buyers stepped in. Futures haven’t looked back since. Here’s where we stand now:

After faking a move lower, gold futures have broken above resistance, posting the first higher low since early July. This could be a significant short-term bottom—especially since it was preceded by a false move lower.

Gold tries for higher lows

2. Miners try for a double-bottom

If you want to find an asset class performing worse than gold this year, look no further than gold miners. Investors have slammed these stocks all year. The group is down nearly 44% on the year. No one wants these stocks…

However, the chart is beginnign to look constructive…

GDX Market Vectors Gold Miners

The miner to metal ratio has been dismal all year. If this bottom holds, we could see miners snap back in a big way…

3. Sentiment is in the gutter

Just 10 days ago, CNBC’s gold sentiment survey revealed 83% of those surveyed were expecting prices to fall. That’s way too lopsided. Whenever you see sentiment get to these extremes, it’s time to start looking for a big move in the opposite direction.

So what happens next?

I think gold (and miners) can move higher from here. It will be messy. There will be big down days mixed with the initial thrusts higher. But right now, gold appears to be setting up for a solid fourth quarter.

I’m not ready to declare blue skies and new highs in gold’s future just yet. But something is brewing right now that could spark a significant move. If you’re nimble and you don’t mind big swings in both directions, this is your time to trade…

Regards,

Greg Guenthner
for The Daily Reckoning

Ed. Note: As long-time readers of The Rude Awakening know… Greg is no gold bug. In fact, this is his first bullish gold prediction all year. So when he changes his tune, it’s time to stand up and take notice. And rest assured, he’ll be following this story very closely in the days to ahead. So you’ll want to get his analysis before anyone else. Sign up for The Rude Awakening, for FREE, right here, and stay one step ahead of the rest of the market.

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The summer gold rally that began in late June ended overnight as the metal plunged below $1,350. As of early this morning, gold is off $32, resting near its recent lows at $1,330. September -- a month that is usually very good for gold -- has not been kind to the yellow metal so far...

Greg Guenthner

Greg Guenthner, CMT, is the editor of the Daily Reckoning’s Rude Awakening. Greg is a member of the Market Technicians Association and holds the Chartered Market Technician designation.

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