Tuesday, July 10, 2007

XAU And Its 13 Month Cycle Of Lows

I'd like to take a longer term look at the gold index (XAU). Above is a 5 year weekly chart of the XAU index with bollinger bands and ADX in the lower pane.

Notice how buying tends to come into gold stocks approximately every 13 months..I outlined the highs and lows of this cycle in red below the price bars and I marked with black arrows all the lows of this cycle. This cycle has been pretty accurate over the last 5 years and it has dominated all the major price swings during this time period.

As you can see a 13 month cyclical low is due and it appears that the rally we are now seeing is confirming that this cyclical low is in.

Notice the bollinger bands and how they are moving sideways. Also in the lower pane notice the ADX is at its lowest level on the chart. Many times when you get the combination of a low ADX reading and a contracting bollinger band width, a new trend develops when the market finally breaks out from the consolidation. This is what we are seeing take place right now although the XAU hasn't broken out just yet.

In addition to the above technicals, we also have a weak dollar and last week we had a very high level of bearishness in XAU options. The put/call ratio was at its highest level in a long time. From a contrarian point of view this is quite bullish.

Right now I am long GLD but I plan on accumulating some gold stocks as well as GDX on dips. As always, we'll see what happens.


V said...

Hi Kevin,

Outside GLD and GDX etf's what Gold stocks are you buying. I looked at XAU components, there are 26 of them, any favourites? Entry(asap I guess)/stop price? Also what are your stops on ETF's?


Kevin said...

I'm not sure yet...I'll see how things look on the next dip...if we ever get one.


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