Monday, May 2, 2011

Peter Brimelow Notes Divergence Between Gold And Gold Shares

In his latest Marketwatch column, writen before gold's tumble last night, Peter Brimelow notes a divergence between gold and the Amex Gold BUGS Index (the HUI.) Althouhg gold roared up to a new record, the HUI closed down on the day last Friday.
Weak gold shares always worry experienced observers. Pring Research noted the shares have “definitely been struggling. … It has managed to set up a negative divergence with the metal price. … This is a troubling factor”

And I recently noted Sound Advice’s warning: “We caution against getting caught up in the noise surrounding precious metals. … We know there are calls for gold to go to $2,000, $3,000, $5,000, but that is based on expectations of Armageddon, an event that always seems around the corner when times are difficult but which usually does not happen.”
The hard-core goldbugs were undeterred, even normally cautious ones like the Privateer.

That confidence doesn't jibe with the tumble last night, but gold does show signs of stabilizing. Needless to say, the divergence theory worked well this time.

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