Best of the Week
Most Popular
1. Gold vs Cash in a Financial Crisis - Richard_Mills
2.Current Stock Market Rally Similarities To 1999 - Chris_Vermeulen
3.America See You On The Dark Side Of The Moon - Part2 - James_Quinn
4.Stock Market Trend Forecast Outlook for 2020 - Nadeem_Walayat
5.Who Said Stock Market Traders and Investor are Emotional Right Now? - Chris_Vermeulen
6.Gold Upswing and Lessons from Gold Tops - P_Radomski_CFA
7.Economic Tribulation is Coming, and Here is Why - Michael_Pento
8.What to Expect in Our Next Recession/Depression? - Raymond_Matison
9.The Fed Celebrates While Americans Drown in Financial Despair - John_Mauldin
10.Hi-yo Silver Away! - Richard_Mills
Last 7 days
The Past Stock Market Week Was More Important Than You May Understand - 31st Mar 20
Coronavirus - No, You Do Not Hear the Fat Lady Warming Up - 31st Mar 20
Life, Religions, Business, Globalization & Information Technology In The Post-Corona Pandemics Age - 31st Mar 20
Three Charts Every Stock Market Trader and Investor Must See - 31st Mar 20
Coronavirus Stocks Bear Market Trend Forecast - Video - 31st Mar 20
Coronavirus Dow Stocks Bear Market Into End April 2020 Trend Forecast - 31st Mar 20
Is it better to have a loan or credit card debt when applying for a mortgage? - 31st Mar 20
US and UK Coronavirus Trend Trajectories vs Bear Market and AI Stocks Sector - 30th Mar 20
Are Gold and Silver Mirroring 1999 to 2011 Again? - 30th Mar 20
Stock Market Next Cycle Low 7th April - 30th Mar 20
United States Coronavirus Infections and Deaths Trend Forecasts Into End April 2020 - 29th Mar 20
Some Positives in a Virus Wracked World - 29th Mar 20
Expert Tips to Save on Your Business’s Office Supply Purchases - 29th Mar 20
An Investment in Life - 29th Mar 20
Sheffield Coronavirus Pandemic Infections and Deaths Forecast - 29th Mar 20
UK Coronavirus Infections and Deaths Projections Trend Forecast - Video - 28th Mar 20
The Great Coronavirus Depression - Things Are Going to Change. Here’s What We Should Do - 28th Mar 20
One of the Biggest Stock Market Short Covering Rallies in History May Be Imminent - 28th Mar 20
The Fed, the Coronavirus and Investing - 28th Mar 20
Women’s Fashion Trends in the UK this 2020 - 28th Mar 20
The Last Minsky Financial Snowflake Has Fallen – What Now? - 28th Mar 20
UK Coronavirus Infections and Deaths Projections Trend Forecast Into End April 2020 - 28th Mar 20
DJIA Coronavirus Stock Market Technical Trend Analysis - 27th Mar 20
US and UK Case Fatality Rate Forecast for End April 2020 - 27th Mar 20
US Stock Market Upswing Meets Employment Data - 27th Mar 20
Will the Fed Going Nuclear Help the Economy and Gold? - 27th Mar 20
What you need to know about the impact of inflation - 27th Mar 20
CoronaVirus Herd Immunity, Flattening the Curve and Case Fatality Rate Analysis - 27th Mar 20
NHS Hospitals Before Coronavirus Tsunami Hits (Sheffield), STAY INDOORS FINAL WARNING! - 27th Mar 20
CoronaVirus Curve, Stock Market Crash, and Mortgage Massacre - 27th Mar 20
Finding an Expert Car Accident Lawyer - 27th Mar 20
We Are Facing a Depression, Not a Recession - 26th Mar 20
US Housing Real Estate Market Concern - 26th Mar 20
Covid-19 Pandemic Affecting Bitcoin - 26th Mar 20
Italy Coronavirus Case Fataility Rate and Infections Trend Analysis - 26th Mar 20
Why Is Online Gambling Becoming More Popular? - 26th Mar 20
Dark Pools of Capital Profiting from Coronavirus Stock Markets CRASH! - 26th Mar 20
CoronaVirus Herd Immunity and Flattening the Curve - 25th Mar 20
Coronavirus Lesson #1 for Investors: Beware Predictions of Stock Market Bottoms - 25th Mar 20
CoronaVirus Stock Market Trend Implications - 25th Mar 20
Pandemonium in Precious Metals Market as Fear Gives Way to Command Economy - 25th Mar 20
Pandemics and Gold - 25th Mar 20
UK Coronavirus Hotspots - Cities with Highest Risks of Getting Infected - 25th Mar 20
WARNING US Coronavirus Infections and Deaths Going Ballistic! - 24th Mar 20
Coronavirus Crisis - Weeks Where Decades Happen - 24th Mar 20
Industry Trends: Online Casinos & Online Slots Game Market Analysis - 24th Mar 20
Five Amazingly High-Tech Products Just on the Market that You Should Check Out - 24th Mar 20
UK Coronavirus WARNING - Infections Trend Trajectory Worse than Italy - 24th Mar 20
Rick Rule: 'A Different Phrase for Stocks Bear Market Is Sale' - 24th Mar 20
Stock Market Minor Cycle Bounce - 24th Mar 20
Gold’s century - While stocks dominated headlines, gold quietly performed - 24th Mar 20
Big Tech Is Now On The Offensive Against The Coronavirus - 24th Mar 20
Socialism at Its Finest after Fed’s Bazooka Fails - 24th Mar 20
Dark Pools of Capital Profiting from Coronavirus Stock and Financial Markets CRASH! - 23rd Mar 20
Will Trump’s Free Cash Help the Economy and Gold Market? - 23rd Mar 20
Coronavirus Clarifies Priorities - 23rd Mar 20
Could the Coronavirus Cause the Next ‘Arab Spring’? - 23rd Mar 20
Concerned About The US Real Estate Market? Us Too! - 23rd Mar 20
Gold Stocks Peak Bleak? - 22nd Mar 20
UK Supermarkets Coronavirus Panic Buying, Empty Tesco Shelves, Stock Piling, Hoarding Preppers - 22nd Mar 20
US Coronavirus Infections and Deaths Going Ballistic as Government Start to Ramp Up Testing - 21st Mar 20
Your Investment Portfolio for the Next Decade—Fix It with the “Anti-Stock” - 21st Mar 20
CORONA HOAX: This Is Almost Completely Contrived and Here’s Proof - 21st Mar 20
Gold-Silver Ratio Tops 100; Silver Headed For Sub-$10 - 21st Mar 20
Coronavirus - Don’t Ask, Don’t Test - 21st Mar 20
Napag and Napag Trading Best Petroleum & Crude Oil Company - 21st Mar 20
UK Coronavirus Infections Trend Trajectory Worse than Italy - Government PANICs! Sterling Crashes! - 20th Mar 20
UK Critical Care Nurse Cries at Empty SuperMarket Shelves, Coronavirus Panic Buying Stockpiling - 20th Mar 20
Coronavirus Is Not an Emergency. It’s a War - 20th Mar 20
Why You Should Invest in the $5 Gold Coin - 20th Mar 20
Four Key Stock Market Questions To This Coronavirus Crisis Everyone is Asking - 20th Mar 20
Gold to Silver Ratio’s Breakout – Like a Hot Knife Through Butter - 20th Mar 20
The Coronavirus Contraction - Only Cooperation Can Defeat Impending Global Crisis - 20th Mar 20
Is This What Peak Market Fear Looks Like? - 20th Mar 20
Alessandro De Dorides - Business Consultant - 20th Mar 20
Why a Second Depression is Possible but Not Likely - 20th Mar 20

Market Oracle FREE Newsletter


Gold Bull Market Breakout As Credit Crunch Creates Flight to Quality

Commodities / Gold & Silver Sep 07, 2007 - 10:16 AM GMT

By: Jordan_Roy_Byrne


Best Financial Markets Analysis ArticleOn Thursday, December Gold leaped $14 to $704, while the continuous spot contract gained about 2% to 694. More impressive to me was how the mining stocks acted. Recently I had mentioned that I thought the gold stocks would begin to take their cue from gold rather than stock market, when gold exceeded $700. Today's action certainly validated that. The XAU was up 5.7% and the HUI rose 6.6%. One day does not make a trend, but if you are a gold bull, you have to like the present situation.

I have so many informative charts to show, but I had to break it down to the most pertinent. There still are quite a few in this update.


First, here is a weekly chart of the XAU:

As I noted on the chart, the most important bullish point is the way in which the XAU blew by its 62% retracement point at 144. Days after the bottom, I wrote that I expected the XAU's rebound to peak around 140 where there was a cluster of moving averages and the 50% retracement. Instead, gold was able to blow right past resistance (139-144). The next point of resistance is noted on the chart. I am not quite ready to say that this run will lead to new highs, but a weekly or monthly close over 160 would turn me very bullish. Lastly, I'd like to comment on the long-term setup of this chart. The moving averages are bullishly aligned while volatility (as measured by Bollinger Band width) for short, mid and long term periods is at a low, consistent with the inception of big moves.

Next is a weekly line chart showing the XAU divided by the S&P 500:

This is one of my favorite indicators and I believe that gold analysts don't use this enough. Investors buy gold and gold stocks because more normal, mainstream things are in bad shape. You never see gold stocks make a major move on the back of a strong stock market. As you can see from this chart, both the XAU and XAU/SPX tend to follow each other. Since this spring I have said that gold stocks cannot make another impulse move until they start outperforming the stock market. To measure that relationship I use the XAU and the S&P 500.

The indicators look very good here as both the RSI and MACD have positively diverged from the ratio, which is close to breaking out from a falling wedge pattern. While this looks very bullish we have yet to see a confirmed breakout. With the stock market sitting at resistance, we need to see how gold stocks perform in the coming days.


Now before we turn to gold I am going to start with the US Dollar. It seems as though everyone is saying, “The Fed will cut rates, the dollar will fall and gold will rise.” I agree with this comment in the long term but for the near term I have a different view. Take a look at the dollar and both gold and the HUI below.

What we can see is that during the major bottoms for gold and gold stocks (2001 and 2005), the dollar has actually rallied along with the gold market. The gold market really took off when the dollar's rallies ended. Currently, the dollar is at long-term support (80) and gold and gold stocks are at a similar point to where they were in 2001 and 2005.

Credit crunches create a “flight to quality” and a flight to cash. The US Dollar is still the world's reserve currency so it benefits. Gold is money, so it benefits as well. The perception is that silver is not money (even though it is), so that is why it has lagged gold in recent months. Hopefully this helps to explain why gold and the US dollar can rise together. Ultimately, when US policy makers begin to inflate in earnest, the dollar should resume its secular decline.

With all this talk about the Fed and the dollar, investors can lose sight of the importance of gold priced in other currencies. As we can see from the chart below, in June of 2005, gold priced in various foreign currencies began to strongly trend higher. It wasn't until September that gold priced in dollars began to really takeoff.

What can we conclude from these two charts? Over the next few months, we could see a period similar to summer of 2005. Both gold and the dollar move up, and gold's greatest gains come against foreign currencies. Perhaps it isn't until early 2008 when the dollar resumes its secular decline and pushes gold past its old intraday high of $888.

Before I conclude, I have two more charts. First, a weekly look at gold:

There is potential resistance less than one percent above the current point. Other than that, this move should take us to $730, the May 2006 high.

Here is an interesting long-term chart:

This chart shows the ratio of XAU/Gold and also the price of gold. Gold has been in a bull market since 2001, yet the XAU/Gold ratio was higher when gold was in a bear market. I find this kind of odd. You would think that gold stocks would be valued higher (against gold) when the price of gold is rising. A possible explanation is that the tech boom of the late 90s, and the emerging markets boom of the past few years, has driven investor funds into those areas and away from gold stocks. Nevertheless, if the bull market in gold continues, you can expect the XAU/Gold ratio to soar. Simply put, this is a divergence that will not last.


In the coming days and weeks, I will be anxiously watching the PMs as the S&P 500 is at critical resistance and due for a decline. For the most part, I do believe the gold stocks can weather a bearish stock market. On days of 1-2% declines in stocks, gold stocks should struggle. However, a grinding (back and forth) downward trend in the stock market will have much less effect (on gold stocks) than sharp declines.

For more fundamental and technical analysis on the gold, stock and commodity market, you can sign up for my free newsletter on the newsletter page of my website.

By Jordan Roy-Byrne
Editor of Trendsman Newsletter

Trendsman” is an affiliate member of the Market Technicians Association (MTA) and is enrolled in their CMT Program, which certifies professionals in the field of technical analysis. He will be taking the final exam in Spring 07. Trendsman focuses on technical analysis but analyzes fundamentals and investor psychology in tandem with the charts. He credits his success to an immense love of the markets and an insatiable thirst for knowledge and profits.

Jordan Roy-Byrne Archive

© 2005-2019 - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.

Post Comment

Only logged in users are allowed to post comments. Register/ Log in

6 Critical Money Making Rules