We've had a spectacular run-up in the precious metals sector, as predicted a few weeks ago, and now we're going to quickly run through the charts to see what happened. Starting with a very long-term chart for the HUI Gold Bugs Index, which actually goes back to late 1999. You'll see at the top of this chart that the XAU Index broke out to new all-time highs, and at the bottom of the chart, you'll see that the GDX Market Vectors Gold Miners ETF has also done likewise, but the HUI Gold Bugs Index has still not broken above its 2011 highs. This is interesting because the entire sector is becoming quite heavily overbought.
And I suspect that what's going to happen over the short to medium term – probably short term – is that the sector is going to continue to advance, and the HUI in this HUI Index chart may give us an indication of where the sector is likely to pause, and profit-taking may set in for a while, probably pausing and consolidating. If there is a reaction back, it probably won't be great. So, what may happen is that the HUI Index runs up – we can use this as a guide – it runs up to the resistance of the 2011 highs, and then it would be a good point to take profits in some overextended stocks.
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