gold report 9/10/09

Here's an update on the ETF GOLD.

My evil impulsive twin is urging me to jump into Gold, NOW!!! My cool rational self says, “Wait.”

“And so, we sit and wait.” (Jesse Livermore.)

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 the bullish rally in gold.




The recent sideways consolidation has broken into a slow downside drift. Momentum is still slow. A break above the 55-Day SMA would be bullish for Gold and suggest the end of the bull rally for stocks. We may still have to wait a little, but given the slow momentum, it now appears to be a matter of when, not if.

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. The red long-term trend lines closely approximate the 55-Day SMA.

Below is the chart of GOLD. Gold weakened on Friday due to the rising currency rate for the Ozzie Dollar. The chart now has a confluence of price and three Moving Averages (13, 34 and 65). Sentiment against the American Dollar is very low (3-4% bulls). Sentiment readings can stay low for extended periods but invariably are good contrarian indicators. Just when the American Dollar might strengthen is a question of patience.

Gold has been in a sideways consolidation for four months now (June-September). A break from that consolidation will probably be strong and sustained. The probabilities lie to the upside.



Gold stocks provide a leveraged play on the gold price. More adventurous traders might look to the Gold Stocks to participate in the anticipated gold rally. Lihir and Newcrest represent the blue chips in the Gold Sector. Junior explorers and producers could be used, possibly to make dramatic profits. But trading those is quite a different matter from investing in the Gold ETF. Many other factors, technical and fundamental may need to be considered.

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.


Cheers
Red