Gold and Dollar Update

As you probably know, gold and gold stocks went ballistic yesterday. The HUI Gold Bugs Index was up by 6.61%, and Gold Bullion increased by about 13 dollars. Today, however, was not as promising. The gold bullion ETF, GLD formed a bit of a shooting star on the daily chart:



In addition, the entire candle is outside the upper bollinger band, and the RSI is getting uncomfortably overbought.

Notice that the high for the day was 70.00, which is round number resistance. But let's not just rely on technical indicators. Let's look at the intermarket picture.

The US Dollar is, once again, at the 80 level. This has proven to be strong support in the past. I exited my gold positions today, and will only re-enter if the 80 level is broken. It will be interesting to see what will happen on Monday.

60 Minute Gold Charts and Gaps

Between August 24th and August 27th, I have posted bullish evidence in favour of gold stocks and the TSX. One of these posts was in reference to an island reversal that had formed in the gold stocks ETFs. Let's have a closer look at what unfolded by observing a 60 minute chart:

(you should hopefully be able to click on the image for a larger view)

What I find interesting is that the gap up was filled by only a 1 cent differential. This is because gaps tend to act as support and resistance. Once the gap was filled, it was all systems go for the gold bulls.

I have experienced this exact pattern before in October 2006 when I was trading Agnico Eagle Mines stock. The similarities between what happened above and what is shown below is uncanny:

Keep in mind that the above chart is a 60 minute chart again. This price action took place in the fall of 2006. Although not an island, please notice how the stock gaped up, filled the gap by a 1 cent differential, and then exploded higher. This is exactly what happened in the first chart posted.

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A Quick Euro Update

One of the forces behind the recent strength in gold stocks has been a rising Euro.  This is because a rising Euro puts pressure on the US Dollar, which bolsters gold.  At this moment, the weekly Euro chart is at an interesting juncture.  

As shown below, the Euro is at the apex of an ascending triangle.  This means that it must break support or resistance within the next couple weeks.  The direction of this breakout will determine the future course of gold prices.





For a combination of technical and fundamental reasons, I feel that the breakout will be on the upside for the Euro.  One event that may have a large impact on currency values will be when The Fed meets on September 18th.  

Some analysts believe that they will cut rates by a quarter point or a half point, but some believe that they may cut rates by three quarters of a point.  That would certainly give the Euro some direction.

Ripples, Waves, and Tides

The month of August has come and gone, so I thought I'd show a monthly chart of gold stocks to see how this month affected the big picture.

I posted a monthly chart of the XAU a few weeks ago, and I indicated that a bull flag had formed. This pattern has not yet come to fruition, but it has not been negated either. You'll see what I mean in this following chart:



Keep in mind that this chart goes back to the 1980's, and each candle line represents an entire month. The candle furthest to the right represents the month of August. What is interesting is that prices dipped far below the confines of the bull flag "intra-month" but closed within the pattern by the time the month came to an end. Since I only consider closing prices, this means that the pattern is still intact.

You will also see in the above chart a circle made on the MACD histogram. I feel that this circle represents the date the the gold bull market was born. As you can see, the histogram has never fallen back below the zero line since that date. This shows that the primary trend is still up.

As you may know, Charles Dow, who was one of the founding fathers of technical analysis, stated, "The market is always to be considered as having three movements, all going on at the same time."

These three movements could be compared to tides, waves, and ripples of an ocean.

I feel that the monthly chart above represents the tide. Daily and Weekly charts represent the waves, and short term intra-day charts represent the ripples. Since the primary trend, or tide, is still up, I feel that this will have a positive effect on gold stocks for the months and years to come.