"Thanks for the great service. The gold bug index was ranging since the beginning of 2011, some people viewed the ranging as an accumulation. On 9/1/11, the index broke the 600 mark, and it appeared that an upward march was underway. Today, the index is down more than 8%, and is threatening 200 MA. Is the ranging we have witnessed since the beginning of this year turning into a distribution? You have mentioned on several occasions that Q4/2011-Q1/2012 is seasonally favorable for gold/silver. Do you still hold this view? It is my understanding (Please correct me if I am wrong ) that fuel is the largest expense of gold miners. How would a surging US dollar, lowering gold price, and lowering fuel cost impact the gold miners?

David Fuller's view Thanks for your thoughtful comments on the service and particularly for some good questions likely to be of interest to many subscribers.

The NYSE Arca Gold Bugs Index (HUI) (monthly, weekly & daily) outperformed most other stock market indices up until this week, although it lagged behind bullion's performance (monthly, weekly & daily). One of the reasons it lagged bullion, other than relative risk assessment, was the overall headwind from global equities, many of which remain in bear trends. More recently, gold's weaker performance from a temporarily overstretched position relative to its 200-day MA, and also against the background of a rallying US dollar, has presented additional headwinds.

Returning to the charts above, HUI had an upside failure earlier this month and a very big downward dynamic this week. You may recall a 'Rule of Thumb' from The Chart Seminar: A failed breakout confirmed by a dynamic from a recognisable trading range indicates a high probability that the opposite side of the range will at least be tested. That would suggest at least another look at the psychologically important 500 region. Therefore accumulation on the basis that gold shares appeared historically cheap relative to bullion does appear to have temporarily turned into distribution.

Turning to the charts of gold bullion above, throughout the secular uptrend to date you can see that 4Qs and 1Qs have often been periods of seasonal strength. However, we also know that bullion 'jumped the gun' this year with its strong and somewhat accelerated upside move last month. This week's decline is a big step towards the mean reversion often mentioned by Fullermoney, although the downward dynamic will worry some holders of bullion more than a sideways ranging consolidation. Consequently, the MA may be breached temporarily, as we last saw in 2008.

Regarding fuel costs for gold miners, I imagine it varies from one mine to another but is nevertheless one of the larger overheads. Individual mines will assess costs and particularly profits in their local currencies. Overall, gold mines are not immune to global weakness for stock markets. However, I would not be surprised to see them rally quickly once this bear trend is over, as we also saw in 4Q 2008 and 2009.

I have given you my thoughts in some detail but do not take my word for it, unless it is confirmed by the price charts, particularly in these challenging times.