Gold Sector Update
posted May 21, 2005 at 01:58AM
If one looks at only the price action, the chart patterns are very bearish for gold. Triangles are breaking down for gold related metrics and the USD is breaking out.
This is mitigated by a few things. One is that, on a daily basis anyways, gold is oversold and the USD is overbought.
The other is that the COT data has taken a dramatic shift in favour of gold in regards to currency markets with the commericials now very short the USD and long the Swiss Franc.
If you remember from way back in happier times, I first got nervous and bailed out of gold when charts that had broken out, then quickly there after negated the break-outs. I am watching now for the same thing except in reverse. A move back up over break-down points would be a bullish sign in my mind.
On the HUI I would look at the 18 and 20 ema. They have been confining the index during its recent spiral downwards. A break through would suggest at least a stronger than normal "bounce", with the possibility of mutating into something stronger.
This could coincide with the USD retesting its 200 dma at which point you would have to decide to hange on or take, hopefully, scalp profits.
Bottom feeding? Well I was looking at it on Friday but couldn't find a vehicle that met market depth criteria.
Again I think it is safer to buy on strength, the breaking through of a resistance metric, than catching the falling knife.
The COT figures certainly have gotten me to take my "powder" out of the chute and into the launch bay...but it first has to translate into bullish price action
On the way up we were told by many luminaries that COT "didn't" matter....and they were right - up to a point as the gold bull established new extremes in that arena. On the other hand going to COT figures now to argue the bullish case may not work out to be a benificial timing device either.
Currency markets have thier own logic. If you look at the monthly charts for the USD from last week's commentary, you can see even "bounces" can be large sustained moves that can make mincemeat on daily overbought technical condition and wreak havoc on gold shares.
A bit heretical here but one can look at some Canadian junior oils, many of which have been pounded mercilessly, but offer some good value. The latter on the assumption that oils are near completion of wave 4, and will commence another leg up shortly.
PPS. On a unrelated matter I just want to note that Fannie Mae has been in existance for 70+ years. The housing bubble started three years ago. To suggest that the existance of Fannie Mae is reponsible for the bubble is like saying 98% of psychopaths drank milk as youngsters and linking the two.