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The Top Gold Stock of 2012

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Gold had quite a rally after the Fed announced its latest round of money-printing, known as QE infinity. The yellow metal jumped to an 11-month high above $1,795 in October, but failed to break above the key level of $1,800.

It is down more than 3% for the month. For me, this is a great buying opportunity.

Gold has been moving sideways for the past year. This directionless move has created a consolidation pattern known as a box or rectangle. In most boxes, the price tends to break in the direction of the previous trend.

In the case of gold, it means the price is more likely to break to the upside than to the downside. You can see the golden box in the chart of GLD, the ETF that tracks the price of gold. With this most recent rally, GLD is now trying to break above $175.

GLD Has Been Moving Sideways

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The cool thing about boxes is that you can project a price target after there’s a breakout. The price usually travels the distance of the height of the box. In this case, that’s $25, the difference between $175 and $150.

So if GLD breaks to the upside, we should expect a quick move towards $200. That’s a 19% gain from current levels.

What could trigger this next move higher?

I think the Fed can be a huge factor. Its “Operation Twist” is set to expire at the end of the year. So the Fed could announce a new program of bond purchases to replace Operation Twist, such as outright purchases of Treasury bonds. A new round of money-printing would help GLD break to the upside of this golden box.


Evaldo Albuquerque
Editor, Pure Income

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