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Gold Price Recovery Suspect

Commodities / Gold and Silver 2010 Jun 27, 2010 - 10:46 AM GMT

By: Merv_Burak

Commodities

Best Financial Markets Analysis ArticleAlthough gold has recovered from its mid-May plunge the strength of the recovery has been very weak and the recovery itself is suspect because of that.  Although gold remains BULLISH for all time periods that may not last long.  Be on guard for any surprises.


GOLD : LONG TERM

Should gold price turn around it would still have a long way to go before the trend could be viewed as bearish from the long term standpoint.  Looking at the long term P&F chart gold would need to drop to the $1155 level before it could issue a bear signal.  As for the usual indicators, well, gold is above its positive sloping moving average line (which is presently at the $1154 level).  As for the momentum indicator, it remains in its positive zone where it has been for 10 years, except for brief periods in mid-2004 and late 2008.  Despite indications of weakness in the momentum of the price moves as long as the momentum indicator remains positive the price is expected to remain positive.  As for the volume indicator, it is tracking the price action but not showing any extra speculative interest behind the price move.  It does remain above its positive trigger line.  At this point in time the only rating I can give as far as the long term indicators are concerned is a BULLISH rating, with little danger yet of a reversal.

Just as an aside, for those of you who are lazy, and we all are, one very simple way in determining if we are still bullish or bearish, long term wise, is to check the 50 and 200 day exponential moving averages of gold.  Crossing the 200 by the 50 tells you where we are.  The 50 above the 200, bull while the 50 below the 200, bear.  Simple, eh!  But you need to use the exponential averages.  The simple and weighted give you more whip-saw reversals. 

INTERMEDIATE TERM

Despite the exhaustion shown in the recent gold activity I don’t see the rating going bearish anytime this week.  Unless we get some extraordinary downside action this week gold should remain positive as far as the intermediate term is concerned.  That doesn’t mean that gold action is not expected to have negative days or a full negative week, only that such action is not expected to go so far as to reverse the existing rating.  So, what is the existing rating?

Gold price remains well above its positive trending moving average line, which at present is at the $1212 level.  As for the momentum indicator, it has already shown us a negative divergence at the May top (versus the previous early Dec action) and another negative divergence at last week’s high (versus the previous high a few weeks earlier).  However, the momentum indicator remains in its positive zone.  Over the past few weeks while gold has been moving in a basic upwards direction the momentum indicator has been moving in a sideways direction and criss crossing its trigger line.   Friday has seen another cross, this time above the trigger with the trigger turning to the up side.  As for the volume indicator, that remains still very slightly positive and above its positive trigger line.  All in all the intermediate term rating remains BULLISH and is expected to remain so for at least the rest of the week.  Confirmation of the bull can be seen with the short term moving average line remaining above the intermediate term line.

SHORT TERM

                                

From a quick look at the short term chart one gets the impression everything is still a-okay.  Unfortunately things are not quite that clear.  The trend is still to the up side.  Such trend could accommodate some downside activity without being broken.  The real worrying indicator is the momentum indicator.  It is very similar to the intermediate term one.  As the price moved higher the indicator did not.  The momentum (strength) of the latest rally into new highs was at a reduced strength from that of the previous rally into new highs.  We cannot last long with continuing reduction in strength BUT at the present time this strength is still positive.  The indicator remains in its positive zone.  Although moving sideways what this says is that the strength has remained at a constant positive level (versus improving).  There is, however, not much room for any further reduction in strength before the momentum goes negative so this indicator needs watching.  The daily volume activity remains very low suggesting a lack of speculative interest in jumping on the band wagon.  Longevity of a move is always suspect if the speculators are holding back.  Anyway, at this point in time the indicators still suggest the rating on the short term to be BULLISH with the very short term moving average above the short term for confirmation.  That could, however, change very quickly.

As for the immediate direction of least resistance, that should be to the up side as the immediate trend is still in that direction.  However, trend and direction of least resistance are not always in sync.  The aggressive Stochastic Oscillator continues to drift more to the down side than the up side with lower highs and lower lows.  Although there may still be a day or two of upside to go it does look like some downside activity may be expected very soon, world situation staying stable.

SILVER

 

          

 

I’m sort of behind time this week so will cut the silver commentary short.  Although still positive, as the P&F chart shows, silver is acting weaker than gold.  How long this will last is anyone’s guess.

PRECIOUS METAL STOCKS

With gold and silver down a fraction of a percent the gold and silver stocks did not fair that well during the week, although with declines on an average of only a percent or so it was not a catastrophic week.  The Penny Arcade Index was the worst decliner of the Merv’s Indices and this is to be expected.  These penny stocks need only decline by one or two cents and they are in the double digit decliners.  Of course, the same is true on the up side.

The ratio of declining to advancing stocks this week was 2 to 1, 33% of the stocks on the advance and 63% on the decline, the rest closed with no change.  The Indices continue to suggest that the recent strength of the stock advances has been made on a lower and lower momentum.  If this continues then the momentum may soon change to a negative and we have a bear market.  For now, even if weakening, the momentum is still positive and the ratings for the various Indices are still BULLISH.

            

Once more I show my overall Composite Index of Precious Metals Indices.  This Index is a combination of all the components of the Indices Table shown at the end of these commentaries.  If one were to compare this weekly chart with a weekly chart of any of the major North American Gold Indices one would see the under performance of those Indices versus the overall Composite.  On this chart the weakening of the long term momentum indicator (the 30 week RSI) versus the Index action can be seen.  As mentioned elsewhere, the momentum indicator is still positive indicating a positive strength in the Index move but that positive is getting weaker and one needs to thread carefully when investing in these stocks.

Another thing this chart shows is the interaction between the intermediate term moving average line (13 WMAw) and the long term moving average line (30 WMAw).  Although the cross over between the line most often comes some time after a trend has reversed, if one were not paying attention initially this cross-over should be a real kick in the behind waking one up to the fact that the major trend has changed and to act accordingly.  For now the intermediate term line is still above the long term line so the major trend may still be considered as positive, even though the Table ratings are starting to show changes.

Another interesting feature here, for those who like trend lines, is the year and a half up trend line.  Here again, as long as the Composite stays above the up trend line everything is peachy.  A similar up trend line may be drawn on most of the major North American Indices so maybe there is something to this line.

Merv’s Precious Metals Indices Table

Well, that’s another week.

By Merv Burak, CMT
Hudson Aero/Systems Inc.
Technical Information Group
for Merv's Precious Metals Central

For DAILY Uranium stock commentary and WEEKLY Uranium market update check out my new Technically Uranium with Merv blog at http://techuranium.blogspot.com .

During the day Merv practices his engineering profession as a Consulting Aerospace Engineer. Once the sun goes down and night descends upon the earth Merv dons his other hat as a Chartered Market Technician ( CMT ) and tries to decipher what's going on in the securities markets. As an underground surveyor in the gold mines of Canada 's Northwest Territories in his youth, Merv has a soft spot for the gold industry and has developed several Gold Indices reflecting different aspects of the industry. As a basically lazy individual Merv's driving focus is to KEEP IT SIMPLE .

To find out more about Merv's various Gold Indices and component stocks, please visit http://preciousmetalscentral.com . There you will find samples of the Indices and their component stocks plus other publications of interest to gold investors.

Before you invest, Always check your market timing with a Qualified Professional Market Technician

Merv Burak Archive

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