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Last Thursday, the XAU closed above 91 to break
the downtrend line that has acted as firm resistance on the
gold stock index since November. Meanwhile, the XAU/GOLD relative
strength ratio, which tends to be the best indicator of the
overall trend in the gold market, also broke its own downtrend
line on Thursday. The XAU/GOLD relative strength ratio tends
to lead both the gold stocks and the metal itself.
After these two breakouts occurred, volume and momentum in
the gold market accelerated bringing the XAU to close 10 cents
below 95 on Friday. The XAU is now poised to test its new
resistance zone of 100-105 over the next 10 trading days.
Once this happens, I'd expect the XAU to enter a phase of
sideways consolidation much like it did during the summer
of 2004.
During this time, I will carefully watch the trend of the
XAU/gold ratio. I expect this ratio to form a resistance line
just as it did between last June and August. And once it is
broken, the full launch of wave 2 of the gold bull market
should begin.
I fully expect that signal to announce the beginning of a
rally that will take the XAU up over 100% from current levels
by the end of the year.
Commercial Gold Futures Traders
Cover
Besides the chart action of gold stocks, the action in the
commercial futures market has signaled that the 2005 bottom
is now in place for gold.
On Friday, the Commitment of Traders Futures report for gold
was released. The report shows the closing gold futures position
for Tuesday, February, 8, 2005.
According to this report, during the 5 days leading into
last Tuesday commercial traders closed out -11,768 short position
and opened 7,604 long position. Commercials traders are now
net 48,000 shares short. This is important, because commercial
futures traders are very adapt at timing the bottoms and tops
of the gold bull market. During this bull market, the commercials
have been 40,000-54,000 shares short at major bottoms.
Incredibly the speculator futures traders, which tend to
be wrong at important market turning points, added 12,185
short positions and closed out 4,758 long position during
this same time.
Just as the commercials are covering, it seems that sentiment
for gold is getting more bearish. I've gotten emails from
dozens of people who were saying that gold is done for good.
This is the type of defeatist thinking that happens at bottoms.
But it's the panic selling that this type of fear creates
that brings buying opportunities in sectors that are in their
own bull markets like gold is now.
Gold will go up no matter what the DOW does. Gold investors
don't need to worry about a tech wreck. Gold doesn't have
anything to do with the DOW or the Nasdaq. It is in its own
world apart from them.
It is a real bull market. And if you can think back to 1999
and the type of money that tech stock investors made back
then, you can imagine the huge opportunity that the gold market
is presenting you right now.
This is like October of 1998. You remember how the Nasdaq
had a big correction in the final months of the summer of
1998 and then bottomed that October? After that bottom, the
Nasdaq started to go up and never looked back. That is, until
March of 2000.
Well it is now October 1998 for gold and gold won't look
back for at least another year.
To find out what gold stocks Mike Swanson holds
and plans on buying subscribe to his free Weekly Gold Report
at http://wallstreetwindow.com/weeklygold.htm
****
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