Gold and silver are preparing to reverse an 18-month correction.While Wall Street's zookeepers tighten restraints around the waking bear that was tranquilized after last year's equity-mauling rampage, elsewhere in the park, an animal has broken free.
Leaping a tall fence and trampling its short captors, the gold and silver bull is running amok. By itself, a quick $40 surge in the gold price is not without precedent. But a nearly 10% move in silver, and a dramatic breakout throughout the precious-metals mining group, signals an obvious sea change from the range-bound trading that had characterized recent months.
Reading the gilded tape
So far this week, the SPDR Gold Shares
Having suggested that Fools hone their focus upon intermediate and junior producers, let's see how my top picks have performed. After an 18% surge, my top pick for gold in 2009 -- Agnico-Eagle Mines
As seen in the tea leaves
Not to toot my own bull horn, but this breakout came as little surprise to those who followed the combination of technical and fundamental indicators that I track for Foolish readers. From a technical standpoint, the longer-term charts have displayed an inverse head-and-shoulders formation recognizable since the midsummer. More recently, gold's trading range contracted within a shrinking triangle that suggested a looming breakout.
To some degree, I believe the analysts are correct in calling this a technical breakout. Institutional momentum-based buying and short-covering appear to be at play as we head into September, historically one of gold's strongest months of the year. However, as a long-term investor tracking the fundamental landscape for precious metals, I am focused on some nontechnical factors that may be boosting the strength of the move.