Gold & Gold Stock Update
Jordan Roy-Byrne
After reviewing charts this weekend I wanted to issue another update on gold. Last week was technically constructive -- and our outlook continues to be positive.
Here is a daily chart of gold:
Most important was that gold managed to hold a confluence of support around the $640 level. First, it held the back-test of the breakout, which occurred at the end of January (Declining tops from $676 to $655). Second, the uptrend from October 2006 is still well intact. Finally it held at the 100 day moving average. This recent hold of support has given gold much breathing room going forward. Gold can consolidate between $640 and $670 and investors need not worry about a change in trend.
Here is the weekly chart:
There are two important things to take form this chart. First, gold has twice in 2007 held the 20-week moving average (equal to the aforementioned 100 day moving average). This moving average, to me, is a very good indicator of the medium to intermediate term trend. Going back to 2003, this moving average has marked support on corrections within an intermediate term uptrend. Once again, despite the last two smack-downs in gold, the metal held the 20-week moving average.
Secondly, Bollinger Band width, which is a measure of volatility, continues to decline. This is positive because if a large upward move is to occur, we need it to commence from a point of low to flat volatility. Take a look at where Bollinger Band width was in the summer of 2005.
Here is a weekly chart of the HUI (Gold Stocks):
The one thing that stands out in analyzing the current situation is that the gold stocks are much closer to a decision point than gold itself. In this chart we can see that gold stocks should be expected to make a move (in either direction) in the next few weeks. Gold has the luxury of more time to consolidate.
Recently I had written that gold was leading stocks, and that would be the case until sentiment became more bullish. We will be watching the HUI and the other gold stock indices very carefully, as their decision point appears to be right around the corner. If I had to guess, I could see the gold stocks turning down to fill the rest of their gaps but eventually finishing this week on a strong note.
19 March 2007
Jordan Roy-Byrne
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