Friday, July 27, 2007

Gold Stocks Damage Assessment

This was one of those weeks where anybody holding any kind of stocks likely got hit. The Dow had its worst week in 5 years, and the TSX lost more than 800 points. Gold stocks, like all stocks, went down again today. So, are we near a bottom?

Let's have a look at a CandleVolume chart of GDX, the American gold stocks ETF. I decided to show it in different colours just to give it a different effect.

The main thing to notice is how large the last 4 candles have been. This indicated that there was a tremendous amount of volume traded during these days. Falling prices on large volume is a bearish combination.

In my last post I said that there was not enough evidence to suggest that gold prices have stabilized, and I still feel that way today. The XAU failed to hold what I labeled as tentative support. Buying GDX today would be like catching a falling knife, and I am still waiting in cash until I get more evidence that we are at a bottom.

Although not shown, Canadian gold stock holders were not hit as hard. This is because the Canadian Dollar had a very bad day.

As you probably know, this fall in gold stocks was connected to a rise in the US Dollar, so let's have a look at that market to see what is going on. Below is a daily chart of the USD.

I have outlined two potential targets for the USD. If the USD index can find resistance at R1, then that would be a bullish development for gold prices.

In summary, if you are a day trader, then I would wait until there is more evidence to indicate a bottom. If you are a long term holder, then I would not be worrying very much. Also, please remember that this site is sponsored by Goldline. Thanks again for visiting.

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