Gold and Silver Index (XAU)

Tweet 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.

Bull Run in the Silver and Gold Index (XAU)

Tweet Bull Run in the Silver and Gold Index (XAU)

Tim Ord





The $XAU chart above dates back to 1985. At the bottom of the chart is the Price Relative to gold Ratio (PRTG). PRTG ratio measures the premium or discount the $XAU is selling against gold. This ratio identifies when gold stocks are cheap or expensive compared to the yellow metal gold. When PRTG ratio is near .20 or below then gold stocks are out of favor and cheap and at a good buy. When PRTG is near .30 range or higher then gold stocks are in favor and expensive and near a high. The time to buy gold stocks is the transition from cheap heading to expensive. To identify this buying zone, we have drawn a red trend lines connecting the highs on PRTG and where PRTG has exceeded those downtrend lines and have triggered buy signals. These buy signal on the monthly PRTG ratio where triggered in early 1993, late 2001, early 2003 mid 2005 and in the last couple of months a bullish crossover has occurred and has triggered a buy signal and the buy signal is still on going. Even though a “Shakeout” did occur in August of this year the month PRTG buy signal remained intact. Therefore the bigger trend is up.





Above is the Breadth statistics for the HUI as of the close yesterday. We keep tabs on this study because its giving good insight of what is going on the HUI index. The bottom window is the % of stocks above its 50 day moving average. When this percentage is near 0% the market is near a low and when near 100% the market is near a high. The next window up is the % of stocks above its 10 day moving average. Again the same percentages work the same way. When both the 10 DMA and 50 DMA are both at extremes (either near 100% or 0%) the market is near a turn and head in the opposite direction. We have circle in blue where the 10 DMA and 50 DMA where near 100% and helped to pick out the highs in the HUI. Recently both the 10 DMA and 50 DMA turned down near the 100% range and suggest the market was near a short term high. The HUI tested the previous high of 9/21 and the McClellan Oscillator was far below its previous high and a negative divergence similar to the negative divergence at the previous highs on the HUI. The negative divergence on the McClellan Oscillator helps to confirm the 10 DMA and 50 DMA for a short term top. We have support coming in near 160 on the XAU and the next support below that is the 147 range. We will be watching these areas for a bullish setup on the XAU. Also on the last COT (Commitment of Traders) report, the Commercials have back off its bullish stance and now are short term bearish. Also Seasonality for Gold in the month of October is bearish.


Therefore they may be a pull back this month but the pull back should be bought. We have support coming in near 160 on the XAU and the next support below that is the 147 range. We plan to go long the XAU on the next buy signal.


Editor's Note: watch for Tim Ord's upcoming book, "The Secret Science of Price and Volume", to be published by John Wiley & Sons, in February 2008.