Caution: If You Own Gold Stocks, Read This

AN UPDATE ON THE GOLD-STOCK RALLY

Gold stocks just completed one of the strongest moves I’ve ever seen…

Over the past two months, gold stock investors have enjoyed tremendous gains.

The AMEX Gold Bugs Index (the “HUI”) is up a whopping 30% since bottoming in July. But after such a strong move higher, gold stocks are extended and in need of a rest…

[ad#Google Adsense 336×280-IA]The precious metals sector bullish percent index (BPGDM) gauges overbought and oversold conditions in gold stocks.

It ranges between zero and 100… Readings below 30 indicate a sector is “oversold,” and readings above 70 indicate a sector is “overbought.”

As today’s chart shows, the BPGDM fell below 10 in July – signaling gold stocks were extremely oversold and due for a bounce.

When the BPGDM finally turned higher, it kicked off a massive gold-stock rally.

BPGDM soared as high as 72 on Monday, before turning lower on Wednesday… indicating gold stocks (like the metal itself) could be taking a short-term break before climbing higher.

– Jeff Clark

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Source: Market Notes