Thomas
DeChastelain
Memorial Archives

Bullion Charts And Commentary
posted Nov 28, 2004 at 12:11PM

Introduction

Bullion prices moved to new highs. Equities remained in thier uptrend and the new ETF broke records in terms of volume and liquidity. The USD cannot catch a bid. Contrarian timers trying to short gold or go long the USD spent the week getting stopped out.

The big question is gold going to take a breather, or continue on its upwards path? On to the charts to see where we stand.


Bullion Charts

Gold Daily



Since the election bullion has done nothing but trend upwards. The technical condition is now overbought and at a level conistent with corrective action in the past.

Gold Weekly



Momentum indicators are now all pressing against resistance barriers.

Equities

HUI Daily



HUI gets back above the 240 swing line. As well trend-line support continues to hold.

HUI/Gold Ratio



Remains within a consolidation pattern.

TSE Gold Index/Gold Ratio




Most people do look at the HUI/Gold ratio so I was curious to see how the TSEGold Index was performing in relation to gold. If the triangle above is the defining structure then what we can expect is more short term-strength followed by a tradable correction. The chart implies that the real action in gold stocks is still in the future.

Currency Check

USD/Yen Ratio



The above fits well with the usual USD chart that I show. There is no change in the USD chart. It keeps tracking lower and getting even more oversold. There has been mumblings about intervention but so far no real observable action. There is nothing on the charts that says the USD won't make it's way down to it's 80.27 measured move target.

Trading Thoughts.

What we have here is a case of strongly trending price action versus overbought technical condition. I am of the mind that price action trumps techncial condition. Look at the USD...yes it is oversold..but it has been oversold for weeks and right now I don't see any reason why bullion should not respond in kind.

We have a confirmed triple top break-out. Indeed unless alien spaceships come by and start dropping bullion bars on the COMEX, the monthly chart is on schedule to show a multi-decade breakout - a breakout of a generational nature. My interpretation of the charts is that we are seeing the initiation thrust of a new major upleg; the first leg of a public acceptance phase. Initiation thrusts almost always lead to extremes in technical condition before corrective action takes place

As well currency charts are at technical extremes, but the triangle price patterns for the USD have targets suggesting continuing weakness in the USD.

If oil follows the same pattern as gold (it tends to lag by 11 months) then I expect it will go up to retest its highs before a more substantial correction (maximum 38%) will take place.

Mind you initiating new positions or adding to current ones in the gold sector is going to be tricky. Yes price action trumps all, but the daily and weekly charts on bullion are far from optimum buy points; indeed they are at positions which during the first phase of the gold bull has led to very tradable retracements. This is not a contarian environment

As well with the HUI/gold ratio still within the bounds of consolidation, one is not getting a lot of oomph from gold stocks. There is a lot of drag in the trading dyanmics of most gold stocks. You got the short term traders takig profits, you have the people looking at the overbought readings and getting out to wait for a retracement. You have the contrarians that are actually trying to short the market. The buying is still strong enough to overcome this, but the gains are coming hard. Will increasing bullion prices increase the urge to sell and take profits or will it bring in new enthusiasm to gold stocks.

(One scenario to be on the watch for is for a few bad days followed by a sharp reversal...a sign that all the people trying to time a top have been cleared out of the way)

So right now my thinking is to hold on to my "inflation friendly" stocks..mostly oils, some base metals that look ready to break out of some pennants. As for golds I am tracking various vehicles but I really would like to see the HUI/Gold ratio to break through resistance before reentering...but each stock must be traded on its own merits.

The potential for reversal is very high from a techncial perspective..stops are something I consider essential in this environment.

Bullet Bullet Bullet