Jim Puplava over at FinancialSense revealed on Newshour (his weekly broadcast) that he is short gold stocks. He may only be short the large-caps. Some of those charts do look bearish in the short-term. Puplava expects more deflation prior to inflation/hyperinflation.

Oddly enough, before I read Monty’s post, this weekend I listened to part of Puplava’s discussion with Quint Tatro. I think Quint is a pretty good technician and analyst but he did say that the HUI had a huge reverse head and shoulders pattern. According to one of the bible’s of technical analysis, the H&SH pattern is usually only relevant at major tops and bottoms. There has to be a long trend that precedes the actual formation of the reversal pattern. John Murphy notes that H&SH patterns can be continuation patterns. One example of that was the huge consolidation in Gold from 2008-2009.

Now, the reality is that there just isn’t a H&SH pattern on the HUI, nor in Silver. It would be a continuation pattern (like Murphy would say) but a market doesn’t crash and then continue up for an upside breakout. Gold formed a real H&SH continuation pattern because it was able to hold above the last major low (summer 2007 low). It didn’t crash through major support the way Silver, the gold stocks and everything else did.

Puplava and Tatro were sounding the alarm and it is true that one can make a great case for a 10-15% fall in the HUI. However, this is highly normal for the super volatile gold-stock sector and its highly normal when you consider how weak the sector is during the summer. It should be noted that Puplava was one of the early bulls (2000) but did ride commodities down in 2008. I don’t think hes calling for a major top here, more so a significant pullback.

We sounded the bearish alarm Wednesday evening when the HUI closed near 460. In last night’s update we talked about how this correction is forming a perfect C wave in a textbook A-B-C correction. With sentiment already very bearish, I will be interested to see what kind of readings we get as the gold stocks reach stronger support. Surely, if the HUI falls towards 400 sentiment will get much worse. We’ll see CNBC and all these “traders” talk about how the gold stocks are broken. I remember Joe Terranova of Fast Money saying Gold had broken down. The next day was the bottom in February and of course Gold rallied $200/oz in the next few months. He also got out of Gold in October, prior to a near $200 run.

Point being, this sector is a different animal and mainstream folks just don’t get it. We didn’t get it for a while. If you want to get our premium insights, stock recommendations, array of sentiment indicators/analysis, then consider a free, no risk, 14-day trial to our premium service. Questions? Contact: Jordan @ The DailyGold .com.

Gold needs wage growth? Crowded trade? The junior miners are just a real estate play? Guy Adami has called six Gold tops in the last year…..

Peter Schiff on CNBC Fast Money….

Marc Faber on CNBC talking Euro & Gold….

Jon Najarian & Fast Money talk Gold M&A & Juniors…

Short-Term Gold Thoughts from Dave Morgan…

Peter MacGuire sees Gold Rising to $1300….

Royal Gold discusses Royalties, M&A at BMO Conference:

Alamos Gold to Double Output (@BMO Conference)….

Gammon Gold Interview @BMO Conference….

It goes like this…. “As soon as the Fed raises rates, it will pop the Gold bubble and the US$ will bottom”

This is totally ridiculous. First, it is real interest rates that matter. Rates need to be 2-3% above the level of inflation. So right now, even if you say inflation is 0% or 1%, rates would need to go up to 2-3%. Secondly, rising rates usually follow the price of gold. It was true in the 1970s and is probably true when you look at the price of Gold in other countries. Rates rise because people don’t trust paper. Rates have to rise high enough for people to abandon hard assets and trust paper again.

Based on this factual analysis, the Fed will have to hike rates aggressively. They have never raised rates when unemployment has been rising. Even by their own admission, they won’t raise rates anytime in 2010. And why would they begin to hike aggressively when the economy is approaching zero hour and maintains no real growth of any sort?

Also, we didn’t factor in the currency weakness. Most people expect the US$ to lose value. If it loses 5% a year and inflation is 2-3%, then rates really need to be 10% to poke the bull in Gold. What is more likely for this scenario is that the Fed says inflation is 2-3% and they can tolerate it now because a weak US$ and low rates will help the economy. Therefore they’d keep rates under 1%, even though its obvious the economy is hitting zero hour- the point where new debt is not creating any real growth.

This argument is just total nonsense. Again, it is just a sound byte you hear on CNBC from the same analysts who have gotten everything wrong. They throw this out there, along with other BS, without even looking at the facts. The interest rate argument is at the bottom of a list of concerns for Gold investors.