Sunday, September 14, 2008

Gold Stocks, US Dollar, and Crude Oil Charts

The above chart is a weekly chart of the XAU gold stocks index. I have said in several previous posts that gold stocks needed to hold the support area outlined above for me to remain bullish on the sector.

During this past week, it appeared that the gold bulls had capitulated, and the bears would close gold stocks well below support. However, towards the end of the week, the bulls miraculously drove the price back above key support, creating the longest lower shadow I have ever seen for the XAU.

In my view this is extremely bullish action, and now, at long last, I am willing to declare that we have likely put in a bottom for gold, and gold stocks.

The next chart is a monthly chart of the US Dollar Index:

When is comes to the USDX, 80 has always been a key support area going back decades. The USD broke support at 80 last year, and plummeted thereafter. Currently the dollar is re-testing this broken support area, which is now resistance. I feel that the USD will likely fail at this level, and head lower, adding more fuel to the gold and silver rebound.

Another development that has occurred that gives me optimism is that crude oil has gone through a healthy correction, and is testing a key level of support as well:

Crude oil is trading within a hair of $100 per barrel, and this number is psychologically significant. This is also the level where crude experienced a breakout, which I mentioned in this post.

I still generally do not recommend trying to pick tops and bottoms, and still feel that trading with the trend is a more profitable methodology. But if you are into picking bottoms, this may be just as good a time as any.

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