special report no.4

Special Report Update
The ETF GOLD
for 25/09/2009

Still no cigar.

“And so, we sit and wait.”

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 to the downside. 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. You can see throughout the bear market, the Ratio Chart line was above that line. In late March, when the XAO turned bullish, the Ratio Chart Line fell below the 55DSMA. The long-term trend lines closely approximate the 55-Day SMA.

Below is the chart of GOLD. Gold has weakened this week. A break below the pennant formation should see a test of the recent lows.

The death knell for Gold was rung back in March when 13-Day SMA crossed below the 34-Day SMA. The 13-Day SMA has now moved back above the 34-Day SMA making a case for the bullish status of Gold. This needs to be confirmed by the Gold:XAO chart moving above the 55-Day SMA.



Following is a close-up 3-month view of the Gold ETF. Short-term, further falls look likely after a break of horizontal support, a negative MACD and the daily RSI below 50. This weakness could extend into early October. A decisive break above the 89DSMA would be bullish.



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