Gold Stocks Are A Buy

Above is a chart you are not going to see anywhere else so let me explain what we are looking at..The top panel is a chart of the $XAU index...The lower panel contains a ratio of $XAU vs Gold..This lower panel is comparing gold stocks to gold futures. First of all, notice on the top panel that the XAU index tends to make significant lows approximately every 14 months. This cycle has dominated the XAU index for the past 7 years.. Every 14 month cycle low has produced some kind of rally...some upmoves are better than others but for the most part the market did rally. Notice a few weeks ago the XAU made a low in the timeframe of the 14 month cycle window and appears to be moving up now confirming the low.
If you look at the lower panel you can see that the ratio line is NOT near the top of it's range.. Almost every time the ratio line got to the .260 area (green horizontal line) gold stocks would either top out or consolidate. Well right now the ratio isn't even close to this level, the ratio line is below .230 which tells me gold stocks are not close to a high and that gold stocks are undervalued vs gold.
Given the fact that the ratio line is low and that the 14 month cycle low appears to be in place, I have to be bullish on gold stocks.. I've been bullish on gold for many other reasons such as a falling dollar.. You can read about the gold/dollar relationship in my post archives..
Nobody knows what will happen in any market..All we can do is try to trade when we think we have the odds on our side and hope it works out.. I feel the $XAU index will make new highs and move above 170.. As always, only time will tell if indeed this analysis is correct..