Thomas
DeChastelain
Memorial Archives

Gold Sector Charts
posted Jan 22, 2005 at 01:32PM

Introduction

I cannot remember a time when I have read such a wide disparity of opinion on where the gold sector is headed.

It is easy to see why. The gold sector is in a technical condition that has led to substantial rallies. On the other hand it got to that oversold condition without the dollar doing much on its side.

This relative underperformance of gold equities, to bullion, to the USD, is of course bearish divergence behaviour, and reinforces the thesis that 2005 will have a deflationary aroma. Throw in a yield curve that is yelling recession and the Fed giving strong signals that interest rates hikes are going to accelerate; and the deflation case seems pretty solid: indeed it is the one I subscribe to at this time.

There are a lot of bullish things though going for the sector right now. The 200 level has survived multiple tests. All the froth has been taken out of the gold COT - it will take some serious upside on the USD to start taking out these more committed longs. The Macclellan Oscillator is coming off very oversold indicators. The HUI/gold ratio is very close to making some bullish noise. During the past week the HUI and bullion stood firm in the face of a rising dollar.

Of course there was also the inaugral address, and the questioning of Condoleeza Rice - all of which points to an environment totally favourable for gold and especially oil. I got to tell you, there was something right down creepy about seeing the most powerful men on the planet enclosing themselves in a bullet-proof bubble in order to watch some high school marching bands go by. Spooky.

A Basket of HUI/GOLD Ratio Charts





I have to admit I like this chart. I have not seen this treatment anywhere. More than anything else this chart says that bullish alternatives should not be dismissed.





HUI Daily




Bullion Weekly



Bullion is not out of the wood yets. The 430 level has returned back to resistance. I would not be surpirsed to see that level tested.

US Dollar Daily



Trading Thoughts

A good term I picked up from a trader on a chat board was "buy and try". It is not an unreasonable situation to take a punt, but with the proviso you don't get married to your positions. I think the potential for whipsaw is extreme especially with regular paper equities off to a very shaky start.

Although one does have to be careful of going to the same well too often, a HUI/gold ratio move through moving average resistance, and through the resistance trend-line are traditionally very reliable buy signals.

Have a basket of suitable vehicles at hand. Obviously some will already have moved but not all.

Good Trading.

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