Gold and Silver Index (XAU)
Tim Ord
Above is the weekly chart of the XAU dating back to 1984. Significant lows form in the XAU when Price Relative to Gold ratio reaches below .20. We have market those instances with blue arrows in the Price Relative to Gold window. In all cases that condition marked a low in the XAU and went on to rally and in some cases the rally last over a year and produce over a 100% gain. On December 17 the Price Relative to Gold ratio reached below .20 but closed above .20 on the close of that week. We still consider this a bullish sign as the ratio is picking out a lower degree bullish turn in the market. The last time this ratio on the weekly timeframe closed below .20 was at the August 2007 low which marked the start of the major turn up. Another short term bullish sign is the weekly Stochastic RSI. Since we are dealing with the weekly Stochastic RSI, we are dealing with an intermediate term timeframe. The week of December 17, the Stochastic RSI, closed below .20 and has turned up which implies the XAU was making a low. The weekly bullish Stochastic RSI reading is coming on the heels of major support at 160 on the XAU along with Price Relative to Gold ratio hitting intra week below .20. A major trading range developed in the XAU dating back to 1984 that had support near 60 and resistance near 160. The XAU broke above 160 which should now act as support. One way to get a target price for the next resistance area on the XAU is take the distance between the high and low the trading range and add that number to the breakout area. The distance between the high and low of the trading range is 100 points and add that to the breakout area of 160, a target of 260 is achieved. A major rally up has started on the XAU from the August 2007 low. A minor wave down from the November 2007 highs to December 2007 low end a corrective wave. The next significant high may reach to 260 on the XAU.
Editor's Note: Look for Tim's new book due in February 2008 titled “The Secret Science of Price and Volume” to be published by John Wiley & Sons.
