NEWS / Foreign Exchange

Gold Watch

By Fernando Gonzalez

It is now almost one year since the end of that spectacular run to multi-decade highs in Gold. As we push towards that one-year "anniversary," Gold has generated some renewed heat we cannot ignore. A good deal of time has passed for the market to absorb and correct the parabolic move to over $700 per ounce, and the market has held-up strong throughout. In fact, over the last few days, this market has reached its highest point since that memorable top in 2006, as we shall see in the charts below. Let's take a look at Gold on the weekly basis, and then later, we take a look at the Gold/Silver Equities Sector, as well as some individual Gold stocks that show a favorable degree of relative strength:

CHART NOTATIONS:

• The Weekly chart of Spot Gold above addresses the Intermediate-Term time horizon
• Note that the market has just reached levels unseen since May 2006. In February 2007, the market attempted to break through resistance which turned-out to be unsustainable, such a behavior I refer to as "decoy" in my classroom.
• The decoy in February lead to a powerful short-term thrust reversal, which now has been completely retraced. In light of the overall trend, this is a sign of strength in the market that suggests further that the high point in 2006 (gray) is very likely to be exceeded.

CHART NOTATIONS:

• The Weekly chart of PHLX Gold/Silver Sector Index, or $XAU, above addresses the Intermediate-Term time horizon.
• The $XAU is a measure of 16 major mining stocks. Note that mining stocks are lagging behind the progress in Gold as it has not been able to exceed the handful of swing highs over the course of the last year. As we saw in the previous chart, Gold is ahead by already having moved to levels unseen since May 2006.
• The weakness in the Gold index is largely on account of weakness in some heavy-weight stocks within the index itself. Among them are ABX, GG and NEM, which have been showing a good dose of relative weakness.

Below are a group of stocks within the Index that are showing a favorable degree of relative strength, likely to continue as long as Gold remains above our key areas marked in our first chart above:

Until next time, happy trading!