3 Gold Stocks Primed for a Rally

09/23/2011 10:30 am EST

Focus: STOCKS

Jack Adamo

Editor, Jack Adamo's Insiders Plus

With Europe swirling the drain and Operation Twist possibly Operation Twisting in the Wind, gold has a lot of headroom here, especially since coming off its highs, says Jack Adamo of Insiders Plus.

The only point of optimism I can see is that the market shrugged off last week’s horrible Initial Unemployment Claims report, and rallied strongly on the news that the US would supply dollars to European banks whose funding through US money-market funds has dried up.

The dominant view is that this will work out to be another “QE” in that all those dollars will recirculate into the US economy, causing more asset inflation in the form of higher stock prices.

Will propping up European banks make the Euro stronger, and the extra dollars make the greenback weaker? If so, this will almost certainly boost US asset prices in the short run, as our Fed goes for a twelfth consecutive year of dosing the world economy with monetary amphetamines.

I noticed that most of the high volume upward moves last week were right in the first few or last few minutes of the trading day. It looks to me like someone is trying to set a positive tone in the mornings and when it doesn’t go well during the day, they prop up the market just prior to the close so that the market finishes in positive territory.

If you have a good charting service, break down the last few days into five-minute intervals and see what I mean.

Gold Looks Good
Gold has pulled back from its recent all-time nominal high. From the action of its long-term chart, I thought it could pull back $300 or possibly even $400 before resuming its rise, but I saw something this weekend that makes me think it may not.

The Commitments Of Traders Report that I’ve been following closely for six years now shows characteristics that in the past have presaged a rise in price of at least 10% and usually 15% to 20% over the next few months. The rises have been getting progressively bigger.

I consider this a form of insider information. It shows how the real producers and users of the metal view the market. History tells me they are much smarter than the hot-money big hedge fund traders.

Hence, although gold looks a bit extended here, I’m comfortable with our current holdings. I recommend you have a full allocation in gold stocks like Goldcorp (GG), Sprott Physical Gold Trust (PHYS), or ETFS Gold Trust (SGOL).

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