Thomas
DeChastelain
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Bullion Charts and Commentary
posted Jun 10, 2006 at 02:07AM

Bullion Charts

Bullion Daily



Well the 50 dma offered next to no support. It is on more firmer ground here. First there is major trend-line support as well large number support at 600. Right below that you have the 38% fib support line. According to Rick Acker this also corresponds to a hidden pivot support at 599.4.

Bullion Weekly



Looks to be on the verge on putting in an IT MACD sell signal. This is a lagging indicator and by the time this crossover is in, some kind of counter trend movement is due on the daily charts.

Bullion Monthly



Again you have to be aware of the momentum indicators, but price action remains the key thing to look at. If we can get some kind of consolidation pattern, then the potential for a future "explosive" move through old highs will come into the picture.

Gold Equities

HUI Daily



The bears have already launched an exploratory probe against the 200 dma. I doubt if this will be their only attempt.

HUI Weekly



The breach of trend-line support confirms that this correction is of a higher order than the previous dips of the past year and a bit.

HUI/Gold Ratio

Close-up Look



Actually the above annotation should read that the 200dma is now confirmed as resistance. This is definitely a chart in bear mode.

Longer Term View



Although not annotated one can see that the ratio put in a major bearish divergence with respect to bullion so that is definitely one to put in the "wall of worry" file. It does remain however in an upwards sloping channel that has been in effect for over four years. Major channel support lies below.

Bullion vs Currency

Well a common feature of all these charts is that they show bullion breaking some significant short term support metrics against a variety of currencies. It does imply that if we ever get into a true deflationary environemt bullion may not do what some people hope it will.

Gold vs USD



Gold vs Yen



Gold vs Euro



Gold vs Rand



The US Dollar




The breach of the 62% fib support is rarely a good sign for the long-term prospects of the chart. It suggests that at some point a complete retest of prior lows (the 80 level) is due. For the short term however, the dollar has broken out of some minor horizontal price resistance and the momentum indicators are all pointing up.

Goldcorp - Sector Flagship



I am not sure why I put this chart up but it "nags". One I certainly did not expect that in a Phase II, Wave III type environment for a best of breed stock to get hit so hard so fast. The other is it certainly emphasizes the need for those who are chasing parabolic momentum moves to always have stops or other risk mitigation tactics in place.

Discussion

In the short term it looks like bullion is certainly due for at least some kind of relief bounce. The 600 level makes for a natural swing line. If the price moves below and then moves back above, that can be used as at least a short-term buy signal.

On the intermediate term picture, things are a bit murkier and I for one would love see at least one more "up and down" sequence to get a better feel for what is going on.

If you go back to the posts of May and June of a year ago you will remember that the start of this upleg was signaled by bullion outperformance vs currencies even though the latter were relatively strong if not moving upwards. Now we have the reverse situation where bullion is underperforming even though currencies are doing nothing overly impressive.

The HUI/Gold ratio is definitely in bearish territory, but not at those oversold levels usually associated with "optimum" entry points for the sector.

Trading thoughts

Again a lot depends on your individual circumstances. For me cash has been the best performing portion of the portfolio and I find myself not overly eager to put it back "to work". Basically I want to see how the price pattern evolves. As you are probably aware the global markets as a whole have been creaking and groaning loudly over the spectre of continued rate hikes, liquidity tightening, and the unwinding of various carry-trades. This has the potential to continue putting a head-wind in front of all but the most compelling equities.

I do have some exposure to energies but those really are from long ago entries. So far oil has held up the best and I think it will continue to do so.

If pressed hard I do think bullion will use the 600 level as a floor to put in some kind of relief rally. On the IT scale I am currently of the belief that the 50% fib support level of $550 will eventually be reached, but we will come to that when and if that moment arrives. If the bounce is a good hard one then triangle scenarios come back into play.

Bullet Bullet Bullet