I am going to start the latest All that glitters piece by stating that gold and precious metal shares are becoming more attractive. However, I don't think we are at buy point yet. Here are the latest results from the three timing models I construct.
The 3-month model
The 3-month model tallied in at a 0.46, down considerably from just a month ago when the indicator was around 2. Historical results when the indicator is in its current range suggests a slight underpeformance of the Phily Gold/Silver Index (ticker XAU) versus the XAU's buy-and-hold average.
6-month model
The six month model registered a similar decline, falling to 0.62 versus a measure well above 2 a month ago. In my mind, the indicator is getting more constructive but continues to point towards an underperformance of the XAU relative to its historic buy-and-hold average. In fact, the weekly average performance of the XAU following an indicator of 0.6 or greater is -0.15%. This compares to the buy-and-hold weekly average of 0.30%.
1-year model
Here is where things get a little more interesting. The 1-year model dipped below 0 this week and registered a -0.06. This compares to a measure approaching one in the month ago period. (as a side note, all the models input an estimate for money supply around $10.25 trillion in the most recent week. I estimate money supply as these figures are reported with a lag.) An indicator less than 0 suggests, using the historical results, a good buying opportunity in gold and precious metal shares.
The positive indicator on the 1-year model notwithstanding, I think it would be prudent for investors to wait for a better opportunity in gold and precious metal shares. I base my opinion on the thought that gold is likely to correct further here, and that the GLD will likely close the gap to $164
I also think the downside move is being confirmed by the pickup (albeit slight) in volume on the downside after the GLD peaked on October 4th. Lastly, I am also concerned that all the indicators, noting that the 3 and 6 month models are more volatile but still robust indicators, are not confirming the 1-year model yet. I remain on the sidelines in my portfolios and continue to wait for a better buying opportunity in gold stocks.
The 3-month model
The 3-month model tallied in at a 0.46, down considerably from just a month ago when the indicator was around 2. Historical results when the indicator is in its current range suggests a slight underpeformance of the Phily Gold/Silver Index (ticker XAU) versus the XAU's buy-and-hold average.
6-month model
The six month model registered a similar decline, falling to 0.62 versus a measure well above 2 a month ago. In my mind, the indicator is getting more constructive but continues to point towards an underperformance of the XAU relative to its historic buy-and-hold average. In fact, the weekly average performance of the XAU following an indicator of 0.6 or greater is -0.15%. This compares to the buy-and-hold weekly average of 0.30%.
1-year model
Here is where things get a little more interesting. The 1-year model dipped below 0 this week and registered a -0.06. This compares to a measure approaching one in the month ago period. (as a side note, all the models input an estimate for money supply around $10.25 trillion in the most recent week. I estimate money supply as these figures are reported with a lag.) An indicator less than 0 suggests, using the historical results, a good buying opportunity in gold and precious metal shares.
The positive indicator on the 1-year model notwithstanding, I think it would be prudent for investors to wait for a better opportunity in gold and precious metal shares. I base my opinion on the thought that gold is likely to correct further here, and that the GLD will likely close the gap to $164
I also think the downside move is being confirmed by the pickup (albeit slight) in volume on the downside after the GLD peaked on October 4th. Lastly, I am also concerned that all the indicators, noting that the 3 and 6 month models are more volatile but still robust indicators, are not confirming the 1-year model yet. I remain on the sidelines in my portfolios and continue to wait for a better buying opportunity in gold stocks.
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