gold etf report 13/11/09

“Now is the time.” Barack Obama


The following is a relative strength chart of Gold:XAO. (This is Gold in Ozzie Dollars – investable through the ETF Gold on the Australian Stock Exchange.) A cross above the 55-Day Moving Average is required to confirm a bullish rally in gold (AUD). Last week, the chart line decisively cleared the 55-Day Moving Average. A “buy” signal was triggered. The chart is now testing the 55-Day MA as support which has, so far, held. The 13-Day SMA has now crossed positively above the 55-Day SMA – a sign of strength.

The strength in the Ozzie $ has been against any strong up move in the Gold ETF. Any sustained weakness in the Ozzie $ would be beneficial to the Gold ETF.



GOLD in Australian Dollars appears to be a good hedge against the Australian stock market. It has a negative correlation to the XAO over a two year period of -0.9%. That is close to perfect over the medium term. It is as much a play in the Ozzie Dollar as it is in Gold itself. The Gold ETF can rise in Ozzie Dollars even while Gold, which is usually quoted in US$, may be reported as falling in the daily news media. Do not confuse Gold ETF with Gold reported in the news media. A fall in the Ozzie Dollar is negative for our stock market, but a strong positive influence on Gold in Ozzie Dollars

The best time to invest in Gold (through the ETF GOLD) appears to be when the ratio GOLD:XAO crosses above its 55-Day SMA (in blue on the chart). You can see throughout the bear market, the Ratio Chart line was above the blue SMA line. In late March, when the XAO turned bullish, the Ratio Chart Line fell below the blue SMA line.

Below is the chart of GOLD (Gold ETF). Gold in Ozzie Dollars has been caught in the pincer movement of a stronger Gold price (in American Dollars) but a weaker American Dollar. So, it’s been going nowhere. Until last week, when it rose above the long sideways consolidation. It has continued to consolidate at this higher level.



A break from that consolidation suggests a strong and sustained move.

The Gold ETF provides a simple and clear hedge against a fall in the general market.

Remember – Gold in US Dollars can fall but rise in Ozzie Dollars, and vice versa. Investing in Gold.ETF is as much a play on currency rates as it is on Gold itself.

Nothing is certain in the stock market. A fall back inside the sideways consolidation channel would be a “sell” signal.

Cheers
Red