Thomas
DeChastelain
Memorial Archives

Gold Sector Update
posted Jul 8, 2006 at 02:22PM

Bullion Daily



Bullion Weekly



Bullion vs Global Equities



I saw this chart posted elsewhere and am duplicating it here. If both equities and bullion have been benificiaries from increasing global liquidity, then there is a certain logic to fearing that both would suffer if the brakes were applied suddenly.

HUI Daily



XAU Gold Ratio



US Dollar Daily



Discussion

in the June 17th commentary I wrote that all things equity were very oversold, with some indexes like housing reaching measured move objective, and that they were due for at the least a relief rally of some sort.

Equities did reverse and have been moving up since that point with varying degrees of strength with gold near the top and housing just doing what it can not to drop any further.

In the short-term I expect some softness in the next few days/week but I do think this upwards leg does have some room left to it. I am of the mind that equities in general have to increase in valuation in the face of at least two, if not three more quarter point rate hikes to really set the stage for a "crash".

In Elliot waves terms this would be described as a B wave. Now B waves have been ridiculed as being "sucker's rallies".

Perhaps, but in higher order moves these legs can be substantial. After all the purpose of a B wave is to convince the market that the bull market has resumed and to do that it must display some form of price action for bulls to hang their hats on. The are liked by contrarians because they nearly always start from oversold conditions with extremes in bearishness.

The entire Nasdaq rally of the last few years can be seen as a B wave, and there was certainly money to be made there.

Of course geo-politics alone is also reason for some kind of bid to remain within the gold complex especially with regards to Iran.

I am of the mind that it would not be a bad idea to get the words "stop-loss" tatooed onto one's forehead.

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