Tuesday, October 16, 2007

Gold Stocks Do Not Look Healthy Right Now

Last week there were two posts made suggesting that the Euro had topped and the US Dollar had bottomed. I still feel this way right now. As a consequence to this, gold stocks may have topped yesterday.

Ever since I turned bearish last week, gold stocks have continued to rise, but they have done so in a fashion not normally associated with a healthy bull market. The daily chart of the GDX, for example, does look worrisome to me. Please refer to the following annotations by clicking on the chart:

In addition, silver is looking weak right now. The following chart is a daily candle chart of SLV, the silver ETF:

Finally, the Australian Dollar, which is a currency very closely linked to the price of gold, looks overextended and ripe for profit taking now. I'll let this daily chart of the currency do the talking however:

So there you have it, three charts, showing three perspectives. I hope that makes sense. If you have any questions or disagreements, please write a comment below. Thanks for stopping by.



Hey Danny,

I agree--key reveral day may have been for the qqqq this past Thursday on the NASDAQ. I continue to think that gold stocks will correct if the broad markets sell off. However for the gold/xau ratio this rally has a little more room to run before hitting extremes--see my most recent post.

Best regards,

Paul Wills

Got A Watch said...

Great Blog! The US $ seems to be not agreeing with your analysis tho:

The USD Index hit a new all-time low around 8:50 AM today (Thurs Oct 18), at 77.478, breaking the previous historical low (Oct 1/07) of 77.657.

Now at 77.60, -0.52 today (!) (11:22 AM) and looking poised to begin sinking again. The US $ is red vs all currencies except for a very minor uptick vs the CDN $.

The WSJ says "The euro hit an all-time high above $1.43 Thursday morning in New York, as the greenback faces pressure from disappointing U.S. economic reports, downbeat fourth-quarter forecasts and high oil prices."

Danny Merkel said...

Hi Paul,

I was just going over your blog, and I realize that you and I are certainly on the same wave-length right now.

You've got a great chart showing the Yen now. I also agree with what you said here,

"Once gold and broad market sell off together a good short term trade will be Horizons Beta Pro Gold Bear Plus Fund"

Danny Merkel said...

got a watch,

I appreciate your comments, even if it is a disagreement. If the USD Index closes at a new weekly low, then I will be proven incorrect, and I will have to take a lose, and move on to the next trade.

If this happens, I will not be disappointed, since I realize that a certain percentage of my trades will not work out.

As long as I feel that the quality of the analysis was sound at the time such analysis took place, I will be satisfied.

Losses are just a cost of doing business, and as long as your analysis gives you an edge, it will pay off over time.