-- Posted Wednesday, 8 November 2006 | Digg This Article
Honest Money Gold & Silver Report
Gold
Gold was up a significant $28.20 to close the week out at $629.20 (continuous contract) for a gain of +4.69%. Not only was this the high for the week, but it was also the highest weekly close going back to August 11, 2006. A solid performance by the sovereign of sovereigns for the week.
The chart below shows gold breaking above its downward sloping upper trend line. It is also above both its 50 dma and its 200 dma. As illustrated on the chart, all the other indicators are flashing overbought levels.
That doesn’t mean gold has to correct immediately, as markets can stay overbought or oversold longer then we can remain solvent. However, the signs are flashing.
Also, note the Bollinger bands on the chart. Prices have pierced through the upper band, which takes the price into oversold territory. We would not be surprised to see a correction before long, as in this coming week. Such would be normal and expected price action.
Gold Continuous Daily
Next is a chart of streetTracks Gold Trust Shares. GLD has broken above both its 50 dma and its downtrend line.
RSI is at overbought territory and has begun to roll over. Histograms have started to diminish ever so slightly.
StreetTracks Gold Trust Shares
Gold has rallied quite a distance in the last couple of weeks, and is deserving of a rest and short-term correction/consolidation. The downside risk appears to be quite minimal compared to the upside potential.
We are waiting for any corrective action to occur and will be using the occasion to establish new positions. A strong intermediate term move up should commence after the short-term corrective phase.
Silver Continuous Daily
Silver
Silver has also broken above is downward sloping trend line, as well as both its 50 and 200 dma’s.
The other indicators are mixed: some are over bought – others are not. The upper Bollinger band has not been violated as was gold’s, so there is room to move.
We expect corrective consolidation in silver as with gold. The downside risk is minimal compared to the potential upside reward. Silver will be entering an intermediate term move up after any downside corrective action.
SLV IShares Trust
The iShares Silver Chart above is bullish as was the prior chart for physical silver. SLV is firmly above both its 50 dma and its downtrend line.
Silver has been outperforming gold, however, it is not as overbought as is gold. We expect the Ishares to begin an intermediate term move as with physical silver and gold.
Gld/Hui Ratio
Next up is a chart comparing the performance of streetTracks GLD shares versus the HUI Gold Stock Index.
The easiest way to read this chart is that higher numbers mean physical gold is outperforming the gold stock index, and lower numbers indicate that the stocks are leading.
GLD: $HUI RATIO
The chart above shows the relationship between physical gold and the gold stocks. It compares the ETF Gold Trust Shares to the HUI Gold Bugs Index.
Lower ratios mean stocks are out performing physical gold. Higher numbers mean physical gold is out performing the gold stocks.
It is generally accepted that the stocks lead gold; or at least it represents more overall strength or conviction in the pm sector if stocks lead the metal.
This may be another classic relationship that may not work quite the same way as it has in the past. Only time and unfortunately hindsight will tell.
On the next intermediate move up in the pm sector we think (as of now) that physical gold may lead the way ahead (at least initially). It matters not to us, which leads – as long as they go up.
They don’t pay you any extra for knowing why. They only pay you if you are on the right side of the trade.
Gold Stocks
The first chart below is the HUI Gold Bugs Index. The index has been rallying up quite nicely. For the week it closed up $16.75 to $327.26 (continuous contract) for a gain of +5.39%. The HUI gained 0.70% more than physical gold.
It was a weekly high close for the HUI and the highest close since September 8, 2006. Both the physical and the stocks are moving up together.
As we have said many times – a lot of overhead supply remains as resistance that needs to be worked off. It takes time and patience for this to occur. It doesn’t happen overnight.
We expect a corrective consolidation this week to be followed by the start of an intermediate term move up within the next couple of weeks.
The second chart below is of the HUI as well. It shows two past ABC corrections as well as the most recent ABC correction that we are presently rallying up out of.
A weekly close that holds for at least three days above 333.31 would be strong evidence that the new leg up in the gold stocks has begun in earnest, and a close above 337.97 would be the highest weekly close since September 8 and further evidence that the new intermediate term move up is in force.
HUI Gold Bugs Index
HUI Gold Bugs Index
Next up is a chart that compares the performance of physical gold ($gold) to the gold stocks ($HUI).
Lower ratios mean stocks are out performing physical gold. Higher numbers mean physical gold is out performing the gold stocks.
As we stated earlier, we have a suspicion that during the early portions of the next intermediate term rise that physical gold may outperform the gold stocks initially. It is generally considered better if the stocks lead the metal. Perhaps, perhaps not - we shall soon see.
The second chart compares the performance of silver to gold. As can be seen, silver has been handily outperforming gold as of late.
We believe that silver is going to be a very stellar performer, and are looking to accumulate positions in a few different silver stocks. However, if there is a major recession and financial distress within the system, gold will outperform silver.
Gold/HUI Ratio
Silver/Gold Ratio
We have been noticing several cup with a handle formations developing on certain gold and silver stocks. These formations are very powerful and can lead to substantial gains.
We wrote a paper on them last year just before the gold stocks went on their tear to new highs. If you would like to read our full 20-page report and see the charts of individual stocks we are holding in our gold portfolio just click on the link below.
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-- Posted Wednesday, 8 November 2006 | Digg This Article
