Saturday, August 30, 2008

Month End Gold and Euro Review

The above chart is a monthly chart of the XAU gold and silver stocks index. This is the same chart I had posted two weeks ago. Since this is a monthly chart, the candle to the extreme right of the chart has now formed, and a new candle will begin forming on Tuesday.

August's monthly candle descended to the upward sloping trend line, and decisively bounced off this level. Furthermore, the price also cleared the horizontal shaded support area, which represents the XAU's previous highs. Both developments are bullish, in my view.

The next chart is a weekly chart of the Euro:

As you can observe, the Euro is testing its upward sloping trend line. At this point, it is holding this level of support, which is bullish for gold and silver. I have no way of telling if this level of support will continue to hold, but for as long as it does, I would count it as a bullish factor for precious metals.

My Renko trend model says that gold's short term trend is neither up nor down. This means that I am unable to take a position until gold decisively moves back up, or fails and continues lower.

In the meantime, I can still indirectly get into the precious metals area by buying Eldorado Gold. This gold stock is on a Renko buy signal, and is showing excellent relative strength against the Canadian gold stocks sector. The following chart shows Eldorado divided by XGD:

Eldorado Gold is one of the only gold stocks that I could find that is still in an uptrend. The fact that this stock was able to hold its ground and withstand the severity of the recent commodity correction is a testament to its strength.

On another note, my stock scanner found another stock to go long this week. The name of the stock is Daylight Resources Trust, and the ticker is DAY/

As you can probably tell, this stock is in a very powerful bull market. As soon as I bought this stock, it began to appreciate. The reason for this is that when a trend is in motion, it has a tendency to stay in motion. Put another way, at the moment of me purchasing this stock, the probability of it continuing to trend was higher than the probability of it turning around.

In the event that this stock does turn around, which is entirely possible, then I will cut losses once it penetrates the 50 day moving average on a closing basis. Otherwise, it will be held for as long as the trend continues. This strategy allows for potentially unlimited gains, yet limited losses.

Turning back to gold, I feel that the fundamentals are still unbelievably strong, and fundamentally nothing has changed, so therefore I remain bullish long-term on this sector. The video clip below, done by Mike Maloney of, is an interview with congressman Ron Paul, and, in my opinion, explains the fundamentals of gold probably better than anybody else:

If the video above is not working, then please click here.

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