Caution Required
by Troy Schwensen, Global Speculator | July 8, 2008
PrintThe following is an extract from the June 08 Issue of The Global Speculator sent to subscribers on the 7th of July 2008.
The month of June 08 has seen gold shares rally higher but remain in a holding pattern whilst the Dow Jones index works its way to new lows. If we revisit our monthly Dow Jones vs XAU chart below we see that gold shares have performed admirably in the face of general weakness and have clearly outperformed the Dow Jones index (Relative Strength Comparative – Top section). A look at the Dow Jones Index in the lower section shows a definitive break down with the target of 10,000 now firmly in sight. While the Dow Jones attempts to find an interim low, I would expect this to continue to have a dampening effect on the XAU, much like what we saw in 2001/02 (the last time the markets came under heavy selling pressure). Again, I would expect the XAU to continue to consolidate much like it did in 2002. Any breakout of the present consolidation pattern will be considered extremely bullish and will mark the next stage higher in this precious metals bull market.
dow jones vs xau (monthly)
XAU
XAU Gold Ratio
Key Dates |
XAU/Gold |
XAU |
XAU Performance |
Gold Price |
Gold Performance |
Net Position |
19/11/2001 |
0.18 |
49.46 |
|
272.90 |
|
|
28/05/2002 |
0.27 |
88.65 |
79.24% |
325.50 |
19.27% |
59.96% |
26/07/2002 |
0.18 |
55.73 |
-37.13% |
303.30 |
-6.82% |
-30.31% |
08/12/2003 |
0.28 |
112.21 |
101.35% |
406.60 |
34.06% |
67.29% |
13/05/2005 |
0.19 |
78.99 |
-29.61% |
420.70 |
3.47% |
-33.07% |
31/01/2006 |
0.27 |
154.19 |
95.20% |
570.70 |
35.65% |
59.55% |
16/08/2007 |
0.19 |
125.99 |
-18.29% |
662.25 |
16.04% |
-34.33% |
Current (04/07/08) |
0.20 |
188.73 |
49.80% |
934.00 |
41.03% |
8.77% |
The XAU, for the month of June 08, rallied to hit 198 before settling back to 189 in early July 08, despite a resilient gold price which remains close to 935. The XAU gold ratio challenged the strong resistance at 0.21 but unfortunately failed and remains in that rather familiar consolidation range of 0.19 to 0.21. We need to see a definitive rally in the XAU gold ratio through 0.21 before a meaningful rally can begin. This will more than likely correspond with a breakout of the monthly consolidation pattern for the XAU referred to earlier. On a positive note, the volatility (top section of the chart) has dropped below zero which is becoming consistent with previous consolidation patterns.
Outlook
The two short term scenarios as I see it over the coming weeks and months:
Scenario 1: The XAU will continue to consolidate in a range between 165 and 195 in line with the monthly consolidation pattern above. Until the markets find some semblance of stability, the XAU will continue to generally under perform the gold price. I support this scenario.
Scenario 2: The overwhelming fundamentals supporting the gold price result in a significant rally through US$1,000 an ounce which drags the XAU higher despite a weak general market. Whilst I fully expect this to happen at some point, I can’t see it for the time being.
Intermediate Term Outlook:
Our next intermediate term target is 270 towards the second half of 2008 or early 2009, on a successful break of strong resistance at initially 200 followed by 210 - 220.
North American Silver Index (NASI)
Copyright © 2008 Troy Schwensen
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Disclaimer: This publication has been prepared from a wide variety of sources which the editor to the best of his knowledge and belief considers accurate. The editor does not warrant the accuracy of the information and forecasts contained in this publication. This information is provided for educational purposes and nothing written should be construed as a solicitation to buy and sell securities.
contact information
Troy Schwensen | Brisbane, QLD, Australia | Email | Website
The opinions of FSU contributors do not necessarily reflect those of Financial Sense.
