BURAK On GOLD
GOLD
Looking at the bar charts, we seem to have a battle going on between the bulls and bears. With reasonably good volume action lately, gold has been trying to break out of its recent down trend. The price is above its very short term positive sloping moving average line and inching above recent resistance. However, despite the volume it just can't seem to get any steam behind its move. Price momentum indicators still suggest weakness in the recent movement. A down trend line from the Dec peak is at about the $430 level and not yet broken while the up trend line from the May low is at around the $420 level. The action is hemmed in between these two trend lines and one or the other should be broken soon providing an indication of best guess next trend direction.
Point and figure (P&F) charts have been with us since the 1880's (in North America) in various forms. They basically provide simple trend information along with levels of support and resistance. They are also, in my view, the best source for estimating the potential for new trend moves. Fortunately or unfortunately, there is no single P&F chart method. What you see today is one of my P&F long term charts for gold. It filters out moves that I have considered insignificant for the derivation of long term information. A simple criteria used with these charts requires the breaking of a 45 degree trend line AND moving above (or below) two recent highs (or lows) for trend reversal.
The chart shows the down trend that started in 1996, bottomed out in 1999 with a double bottom in 2001. On this chart the down trend was reversed in early 2002 with an initial projection to $380. The move then gave a more significant break-out in mid-2002 with a further projection to $580. The up trend is still intact and per THIS chart would not be reversed, on a long term basis until $370.
In future commentaries I will show intermediate and short term P&F charts of gold, showing more concentrated action.
U.S. Dollar
The recent US$ rally may be losing its strength. A short term topping process seems to be setting the stage for either a reversal by a move below the 83 level or a continuation of the rally once through the 84 level. Price momentum indicators seem to be suggesting, at this time, that the direction of least resistance is downward.
On the intermediate term, the beautiful momentum positive divergence we experienced as the US$ made its new lows in Dec is still intact, but also weakening. This rally may have ended but let's not get ahead of ourselves. Let's wait fro the action to tell us what's next.
Gold Indices
The various Gold Indices had a crummy week. Almost all lost ground. The popular PHLX Gold & Silver Index (XAU) has now broken below its intermediate term up trend line clearly establishing continuation of an intermediate term down trend. There is some minor support at the recent low and this might stop the slide, but I doubt it. The AMEX Gold Bugs Index (HUI) has shown better action and is still above its intermediate term up trend line. It is also above recent support, well established at the 200 level.
Despite the somewhat positive short term indications the overall impression is that the gold indices are not yet set for any major reversal of their bearish trends. Time will tell.
Merv's Gold Indices
The various Merv's Gold Indices had a rotten week with the rest of the crowd. From the overall Index of 160 stocks to the lowly gambling index, the fortunes are not yet looking good. Looking at the percentage of stocks that are considered technically bullish, we get only 20% to 30%, depending on the Index. That is not enough to consider the gold stocks attractive to jump into as investments. Gamblers can always jump in on individual stocks but know that they are taking extra risks when the majority of stocks are moving in the opposite direction. Speculators, those investing with technical knowledge, may be nibbling at many stocks as the short term continues to look positive. These speculators try to get in early in a trend for maximum gains but ALSO have their stop loss points well thought out to protect capital in the event of a surprise turn of trend. If you do not understand how to protect yourself from a surprise, you should not be in the market. One unprotected loss can wipe out several good gains, if not your whole portfolio value. Ask any Bre-X "investor" taken in by a "story" and did not protect himself from surprises. I got my people out at $23.00 (in at $0.31) based purely on the technicals without knowing any "story". Most speculators following the technical charts were out around the same price so it was not rocket science.
Reading the Info table
The intermediate and long term technical information table provides the latest weighted moving average (MA), price momentum (MOM), relative strength (RS) and an overall technical rating (RATE) of each component. A + or - symbol is provided to indicate if the indicator is gaining strength or losing strength.
Mervyn Burak, CMT
Hudson Aero/Systems Inc.
Technical Information Group
merv.burak@hudsonaero.com
31 January 2005
During the day Merv. practices his engineering profession as a Consulting Aerospace Engineer. Once the sun goes down and night descends upon the earth Merv. dons his other hat as a Chartered Market Technician (CMT) and tries to decipher what's going on in the securities markets. As an underground surveyor in the gold mines of Canada's Northwest Territories in his youth, Merv. has a soft spot for the gold industry and has developed several Gold Indices reflecting different aspects of the industry.
Although not normally available to the public, to obtain a copy of the latest weekly technical information on the component stocks of the various Merv's Gold indices, e-mail a request mentioning this Gold-Eagle offer. PLEASE provide at least your name and home town.
Email this Article to a Friend 
Printer Friendly Version
