If you include the daily highs and lows, gold moved about as sideways as you can get during the week. Silver, on the other hand, broke a 7 month support and would you believe, is projecting back to the $4 lows of 2001. And oil, despite the gains on the week, is still having problems going through the $68 mark despite a $74 projection. Another interesting week. But our focus here is on gold so let's get to it.
The P&F chart still tells the story of the long term trend for gold. Some scary times around the $410 level a few weeks back but now a new bull break. However, the final resistance is still sitting there at the $450 level. It would take a move by gold to the $460 level to perform a final break. Such a break could really see a sharp upside move possibly well within the $500 price level. But first things first, we need that next break-out. For those who are interested I am now using the Dec futures prices for the price data.
As for the usual indicators, gold is comfortably above its positive sloping moving average line. Price momentum is also comfortably above its neutral line. Volume indicator is above its long term moving average line but I don't consider volume too important when looking for long term reversal indications, although at times it is important. This week's chart shows the long term bull about as clear as you can get. There is the long term up trending channel with the support (blue) and resistance (red) trend lines. There is that lateral trend that gold has been going through all year with the support (blue) and resistance (red) lines. As long as gold stays above the support up trend and lateral support everything is roses.
When you put everything together, I'm still BULLISH on the long term.
As with the long term, the intermediate term P&F has broken on the up side but still has that same major resistance at the $450 level. In this case however, the final break-out is at $455 because of the smaller unit values. One might then say that we can confirm a new bull move at $455 rather than $460 and go with the expectation of a trend continuation through the $460 mark. However, the intermediate term P&F chart has already indicated a direction change with the price in a down mode. A bar chart shows gold making a new 8 month high, but going nowhere. The pattern one sees on such chart is that of a short term head and shoulders pattern. Should the price drop below $440 this would break the "neckline" and project back to the $425 area, still a higher low versus the July low. We see that the price is still well above its intermediate term positive sloping moving average line with the price momentum also well above its neutral line. Although our volume indicator is showing a positive indication the recent volume action has not been anything to write home about. Since the high volume of activity just before gold made its top in Dec, volume has been underwhelming.
Although it would take only a small move to push gold below the $440 level to cause a strong potential $15 drop (and that seems to be the trend of least resistance), as a technician I stay with the trend until it has confirmed a reversal. The trend is still BULLISH on the intermediate term and will remain so till at least below the $435 level.
My short term and immediate term gold prognosis is now available to subscribers of Merv's Precious Metals Central.
If it wasn't for the Merv's Gamb-Gold Index this week would have been a complete wipe-out as far as the gold Indices were concerned. Most Indices are still rated as long term BULLISH (POS) but it's a different story when we get into the short term. A disaster in the making. Let's hope that the short term does not continue for long.
Today we have a look at the PHLX Gold/Silver Sector Index and Merv's Spec-Gold Index
PHLX GOLD/SILVER INDEX
This Index is probably North America's answer to a "quality" Gold Index. It not only includes a dozen of the largest gold companies but the Index value is calculated with a greater weight given to the largest of the large. Compare this Index with Merv's Qual-Gold Index for performance. Merv's Qual-Gold Index does not attach any greater weight to the largest companies versus the smaller of the large. What you see in the Merv's Index is an AVERAGE performance of the 30 component quality stocks (chart to be shown next week).
The PHLX Index continues to stay above its long term up trend line although the slope of the line is quite gentle. During 2003 the PHLX Index took off in a blaze of glory, which became a blow-off move that ended in the highest level during this bull market. It came close once but for a couple of years the trend could be said to be a lateral trend with huge volatility.
Where does this Index go from here? Well my guess is that it just might head back towards the up trend line again. If one looks at the long term moving average and price momentum information that is the path of least resistance.
MERV'S SPEC-GOLD INDEX
The Index shown is that of Merv's Spec-Gold Index. As one can see, when these stocks move they move fast and furious. Some 2000% increase in the Index in 3 years, now that's a performance one can understand. Best of all, this is the average performance for the 30 component stocks.
Since the Index made its high in early 2004 it has been tracking in a lateral direction with strong support as shown on the chart. The stocks in this group (and in the Merv's Gamb-Gold Index) are consolidating their huge gains and preparing for the next major bull move. That move should get going once the Index breaks above the upper resistance trend line. This may still be some time ahead. In the mean time there are individual stocks that are popping out and performing spectacularly. Orko Gold was up 59% last week alone. These are yet few but seem to be slowly increasing.
Component stocks of the various Merv's Indices, their technical information and ratings can be found in the subscriber's section of Merv's Precious Metals Central (see below).
Reading the Info table
For a tutorial on reading and benefiting from the technical information in the table please go to the www.themarkettraders.com web site and access the SAMPLE section of Merv's Precious Metals Central. There you will find the tutorial as well as samples of the component tables of the various Merv's Gold and Silver Indices.
Mervyn Burak, CMT
Hudson Aero/Systems Inc.
Market Technical Information Group
www.themarkettraders.com
merv@themarkettraders.com
29 August 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.
To find out more about Merv's various Gold Indices and component stocks, please visit www.themarkettraders.com and click on Merv's Precious Metals Central. There you will find samples of the Indices plus other publications of interest to gold investors.