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This will be an August to
remember – no summer “dulldrums”
this year. Gold has risen roughly 12% this month and nearly 30% year to date.
Gold prices had a trading range of more than $300 in August.
Stocks are a different story. Wall Street ended the
month with losses that came with an extended rout the first three weeks, with
the current batch of gains only denting the damage. Since the start of July
the FTSE 100 has lost 10.6%. The S&P is down 8.2%. The NIKKEI 225 has
lost 8.8%, while the German DAX has plunged 22.6%. By contrast, gold prices
have gained nearly 23% over the same period.
September is supposed to be the worst month on the calendar for stocks with
losses averaging up to 1.2%, which, after a lousy August, does not bode well.
By contrast, physical demand is likely to be strong for gold in the coming
months due to expected strong buying from India, the world's largest gold
market as the country begins its annual festival season.
Tuesday the price of gold price leapt 2.2% in less
than an hour hitting $1832 per ounce - still 4.2% off last week's all-time
high of $1,917.90. Gold rose on speculation that the Federal Reserve will
further ease monetary policy to stimulate the economy. Minutes of the Fed
meeting showed that a few members of the rate-setting committee “felt
that recent economic developments justified a more substantial move”
beyond the central bank’s Aug. 9 pledge to keep borrowing costs at a
record low until mid-2013. This bias on the part of some Fed officials toward
providing more easing was due to deep concern about the long-term
unemployment.
Chicago Fed President Charles Evans said Tuesday in
an interview that “We need to do more.” Just that statement was
worth $38.20 in the price of gold. This is after Fed Chairman Ben S. Bernanke
refrained from announcing additional stimulus last Friday at a meeting of
central bankers in Jackson Hole, Wyoming.
Wednesday gold futures fluctuated between small
gains and losses keeping above the psychologically important $1,800-an-ounce
mark.
Gold has risen roughly 12% so far this month and
nearly 30% year to date. At its record high on Aug. 23, the spot price of
gold was up 18% from the beginning of August and 35% year to date. It dropped
11% to just over $1,700 within two days of hitting the high. This was no big
surprise if you had considered what we had written on August 16th
in our essay on top in gold:
(…) the
overbought situation comes at a time when price levels are at or near very
strong long-term resistance lines. It does appear that we are quite close to
an important top (…) and long
positions in gold at this point seem very risky at least for the short term.
Although plunges can be scary, it gives one
perspective when you consider that the correction took gold no lower than it
had been trading just two weeks earlier.
If your curiosity is aroused by what might happen
during the following week, we’ll begin this week's technical part with
the analysis of the XAU Index. We will start with the long-term chart (charts
courtesy by http://stockcharts.com.)
 
In this week’s very long-term XAU Gold and
Silver Index chart, we have a situation which is quite mixed once again. The
sideways price movement has been seen since late 2010 and attempts to move
above the level of previous highs continue to be seen. A powerful rally would
likely follow if this move is seen but our skepticism continues until such a
breakout is seen.
In this week’s long-term HUI Index chart, we
did not see the plunge which would be in perfect tune with the symmetric
pattern. However, this symmetry does not have to be perfect. The single spike
high did not appear as in the past, but if gold stocks decline from here, the
price action will still be similar to the previous decline. Based on this
chart alone, the situation is bearish as no breakout has been seen and the
basic symmetric pattern is still in place to some extent.
In this week’s short-term GDX ETF chart, we
actually see some bullish price pattern in the form of a reverse
head-and-shoulders formation. If this pattern is completed, it will likely
lead to much higher prices but we would need to see gold’s stocks move
above previous highs and verify the breakout.
Based on this chart alone, a rally appears likely
due to the recent trading pattern. However, there is also a possibility that
we are seeing a double top right now. We are truly
at a crossroads and the breakout or breakdown which is yet to come will
likely determine a much bigger move in the same direction.
Summing up, the situation for mining stocks is mixed overall.
The recent move to previous highs is bullish since the underlying metals did
not follow or lead the mining stocks. A truly bullish situation would be a
move above previous highs here and a verification of this breakout. This has
not yet been seen, so the situation remains mixed.
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Thank you for reading. Have a great and profitable week!
Przemyslaw
Radomski
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