For this past week, gold bullion increased in price by $21.00, or 2.67%. However, and this is amazing, gold denominated in Canadian Dollars actually fell. This week, the Canadian Dollar rose relative to the US Dollar by 3.03%, so that means the Canadian gold holders lost .36%.
In this post, there will be quite a few charts. Since in the previous post, we had a look at oil, let's see how oil stocks are doing, to start things off. The daily chart below is of an ETF that contains a basket of Canadian energy stocks. (The ticker symbol is XEG.to. There is another ETF that will allow you to short this index by a factor of 2. Its ticker symbol is HED.to.)
The yellow area is simply showing that this ETF is coming against some gap resistance. The next chart shows the TSX Composite Index. This index is highly oil driven, so it is not surprising to see this index bumping into some overhead resistance as well.
In the TSX chart above, I've also outlined some volume patterns. The next chart is a daily candle chart of XGD, the Canadian gold stocks ETF. There are a couple of things to note here. Firstly there is gap resistance as well in this chart, and there is another layer of resistance that stems from the previous high formed in April.
Furthermore, in the above XGD chart above, you can see that there is a large divergence forming on the Relative Strength technical indicator. Finally, I made a comment on the chart saying that this ETF has not been as strong as, say, GDX. This is because the Canadian Dollar is rising so rapidly.
The chart below shows the daily price action of gold stocks, as measured by the XAU, divided by the gold, as measured by GLD. In a healthy uptrend, we want to see gold stocks outperforming the actual metal. For the last month or so, this has not been happening.
In addition, there is a RSI price divergence apparent on this chart. And if you use your imagination, there is a head and shoulders pattern forming over the last 6 weeks.
So, overall, I feel that at this time there is a confluence of negative factors working against gold stocks. Gold has basically risen 12 weeks in a row, and no market, no matter how strong the fundamentals, can go up in a straight line.
Long term holders of precious metals can definitely ride this out, however. I feel that gold will be at over $1000.00 an ounce this time next year, and the USD Index could eventually go into the 40's, but it will never get there in one straight line.