Although a short week (everyone was watching Danica, Tuesday and Wednesday market must have been a left over disappointment at her losing first place) gold ended the week on a high note. Friday did seem like it was struggling although it ended up higher. Let's see where we are, technically speaking.
LONG TERM
First there is the P&F chart. It is still bullish with no real end in sight. It hasn't budged from its last week's position. The next P&F projection remains at $580, give or take a few $.
As for the usual indicators, gold is below both my more aggressive long term moving average line and below the more common 200 day moving average line. The difference between the two is my aggressive line is already sloping downwards while the 200 DMA line is still sloping upwards. Both are located just below the $430 level. Should gold move above that level this would activate a continuation buy signal for those adherents of the 200 DMA methodology. For me, I need to also look at the other indicators for confirmation of the move. Here, the price momentum represented by the 30 week RSI is important. It has just touched its neutral line and is bouncing upwards continuing inside the positive zone. As for volume, well it too has been upgraded recently and is showing a positive trend. All in all, I am neutral at this point but would go bullish on a close above the $430 level.
INTERMEDIATE TERM
The intermediate term P&F chart has not changed and is still technically bearish. Due to the subsequent sideways movement since the bear confirmation the P&F chart is considered neutral and requires $410 to reconfirm the bear or $450 to confirm a reversal to the bull.
Gold has just crossed above its intermediate term moving average line with the line in the process of turning up, but not quite there yet. Another day or two of positive price action would probably reverse the line slope to upwards. The price momentum is still within its negative zone but rapidly heading towards that neutral line. Here too, another day or two of positive price action and the momentum would probably go positive. Volume is the very bright light after so long in the dark. Looking at the simplest of volume indicators, the On-Balance Volume (OBV), it is at its highest level since the top last Dec. However, looking at the daily volume data one is cautioned to note that most of the highest volume days occurred during minimal upside price movement. The past couple of days of large price movement were performed with a greatly diminished volume. So, we'll just have to see how this volume plays itself out. For now I am upgrading the intermediate term rating to neutral while awaiting better price and momentum values, hopefully in the next couple of days.
SHORT TERM
The short term P&F chart is little changed from last week. It has moved up during the week but still has not broken above 2 previous highs or crossed above the down trend line. For now this chart is still rated as bearish.
As for the usual indicators, gold has moved well above its moving average with the average in a well defined up trend. Price momentum has moved sharply into the positive zone but not yet overbought. There is still upside room before the indicator goes overbought. As for volume, this is a two story indicator. The simple On-Balance Volume (OBV) is gung-ho positive lately while the daily volume is a mystery. The OBV is almost at the level it was at during the Dec highs while the price still has far to go. This is usually a good indicator as volume should normally be ahead of price, sort of predicting which way price is going to go. On the other hand most of the heaviest volume days occurred a week ago with little price movement while this past few days of large price movement say a significant volume decline. This is often very positive however one must always keep his mind open. Manipulation (overt or unintentional) does occur and one must always be prepared for surprises. Anyway, with the indicators as positive as they are (except for the P&F) I am bullish on the short term.
Now for that immediate trend as represented by the Stochastic Oscillator, it is up, up and away. Well in the positive zone (but not yet into the overbought zone) and pointing upwards, this indicator is still suggesting there may be more upside days ahead.
U.S. DOLLAR INDEX
Since the US$ Index seems to lead gold prices it is instructive to quickly look in on this Index. Long and intermediate term can be quickly summarized as bullish with all indicators and P&F charts confirming. It's the short term that is most interesting. With the actions of the recent few weeks one might expect that a rest period or even a trend reversal should lie somewhere ahead. This is what the charts are indicating. The short term price momentum has moved into its overbought zone where it has not been since the highs of Aug 2003. At that time the US$ Index plunged from 99 to 85 before it had any significant reversal. I don't expect the same plunge but do expect a period of possibly sideways movement, or maybe even some minor downside before any further significant upside continues. Why do I think there is still more upside ahead for the US$ Index? It's the weak Euro. What does this foretell about the price of gold? It could foretell continued upside in gold to go with the normal gold/$ opposite movement criteria.
GOLD INDICES
The various gold and silver Indices continue to move higher except for the FTSE Gold Mines AUSTRALASIA Index. I'm not sure what the problem here would be other than currency differences or a single, highly weighted Index stock declining sharply. As for the North American Indices one can see that the average stock performance was better than that of "weighted" Indices. The Merv's Indices seemed to have outperformed the other North American Indices by one or two percentage points.
Looking briefly at the Merv's Indices, although the quality Index, Merv's Qual-Gold Index, had a good week it was the gambling stocks that are starting to flex their muscle. The Merv's Gamb-Gold Index had the second best performance this past week while the overall Merv's Gold & Silver 160 Index had the best. It should be noted that after you take away the 60 stocks represented in the Qual & Spec Indices the remaining 100 stocks in this 160 Index are outright speculations or gambling stocks. So the average performance of the Merv's Gold & Silver 160 Index reflects, to a great extent, the average performance of the speculative sector of the industry. Although I've tried to separate the more aggressive of the speculative stocks into their own gambling section, the Merv's Gamb-Gold Index, it's difficult to always include the new upcoming movers but the performance of the Gamb-Gold Index over the years suggests a reasonably good performance (30 stock average of 1967% since Dec/2000).
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
5 June 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. As a basically lazy individual Merv's driving focus is to KEEP IT SIMPLE.
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 full name and home town.