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Gold Sector Update
posted Mar 4, 2005 at 09:28PM

Gold Daily

As somewhat anticipated, gold was weak in the early part of the week. Very strong reversal on Friday which occurred above the 50 dma. Lots of moving average and trend-line support here. The stochastics say to expect continued strength going into the week.

Gold Weekly

So far so good. The MACD is an indicator to watch. A bear kiss a potential warning that a big C wave down is coming. A MACD cross is bullish for the intermediate term but one would expect a retracement to come shortly after that on the daily (short-term overbought). That retracement, in which swing and bounce trading mentalities get out of the market, would be the one to finalize positions for the meat of the upleg.

The fly in the ointment are the bearish stochastics which indicate we may be close to an inflection point and that a retest of the major support trendline, at the least, is coming.

HUI Daily

Nice reversal candle on Friday. Nice energetic response to bullion price rise, always a good thing to see.

HUI/Gold Ratio

Has been consolidating nicely under the 200dma. A break above would be seen by many as a technical buy signal. If bullion keeps going and puts in a bullish MACD cross (on the weekly)then one would expect the HUI/Gold ratio to break trough the trend-line resistance. A retracement to do some back-testing and then away we go. That would coincide with the USD testing 80 support, bouncing, and then breaking that support.

USD Daily

A mirror image to gold. In that respect gold is still basically a currency play at this point. It's real bull market will come when 25 years of neoconservative financial managment comes home to roost. It took communist Russia 70 years before it collapsed under the weight of internal contradictions. I doubt very much if we will have to wait that long for the US house of cards to crumble, not with the current crop of malevolent imbeciles running the roost.

The big question still is are we going to get a Weimar Republic like hyper-inflation, or juist your standard deflationary depression?

So far the inflation forces have the whip-hand.

In the short term the bearish candle on Friday looks like a bear channel breaking down. It remains on short-term sell.

USD Weekly

A more bullish technical picture. It is still on MACD buy signal and the stochastics are indicating that this recent downwards action may simply be a retracement of a first upleg off its lows.

Trading Thoughts

In the end I would give priority to the daily charts over the weekly, and as such I am expecting the sector to remain buoyant. I see nothing out there as of yet that says one should be discarding inflation friendly stocks.

Obviously every stock has its own chart that one should trade, but the odds are in your favour if the sector as a whole is moving northwards. From what I have observed, bottom picking (new lows coinciding with bullish divergences)is starting to work: indeed better than looking for break-outs.

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