Thursday, August 26, 2010

Gold Stocks- Bullish Pattern

Above is a weekly chart of the gold stocks index (XAU) and as you can see there is a coiling pattern taking place which is forming a triangle. As you know I've been bullish on gold due to the bullish seasonal influence that we normally see during this time of the year.

In the lower panel is a ratio line which compares XAU to the S&P500. If the ratio line is rising it means that gold stocks are outperforming the S&P while a falling ratio line would indicate just the opposite. You'll notice that the ratio line is about to breakout to a new high which adds confirmation that the rally should continue. Notice I said "should" as there are no absolutes in trading.

Today the gold stocks were the strongest group of the day gaining 1.69%  from yesterday's close. 


Anonymous said...

Kevin what sort of timescale/target do you see this trade unfolding over? given that:
a) you have posted a weekly chart and
b) you have suggested that sept is bullish for gold

Kevin said...

I would say if this trade works out, it should rally for a few months. This is not a day trade or multi day trade, its more likely to rally a few months given the lengthy consolidation.

Anonymous said...

Does that also mean, USD is trending done and hence general market is trending higher? Do you think the fall correction is done, too?

Anonymous said...

My sentiment analysis also shows that we are far away from euphoria in PM. It should be a good trade even though there could be a rough patch ahead.
For the poster above, gold can trade disconnected from general markets and dollar too.

Anonymous said...

Is it possible that the price of gold is being artifically inflated because the GLD ETF exists?

According to the GLD fund summary, "... The gold held by the trust will only be sold on an as-needed basis to pay trust expenses, in the event the trust terminates and liquidates its assets, or as otherwise required by law or regulation."

This seems to say that the GLD ETF is stockpiling physical gold and it will always be a buyer/holder (never a seller) of gold.


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