Saturday, November 10, 2012

Technical Take on Gold- Look for Lower Prices

The price of both gold and the the Spider Gold Trust (ticker GLD) have bounced hard off their respective 200-day averages. This is while the volume has picked up. Looking at the chart, there could be a little left in the run, around $20 be to exact. However, I am thinking the recent run is the market building energy for another downward move in the price of gold and the GLD.

This thesis is based mainly on the volume characteristics in the recent bounce. Although stronger than what has been a daily occurrence in September and October, it still does not come close to the volume seen in the February 29th sell off. On this day, approximately 300 thousand contracts in gold futures changed hands while more than 44 million shares in the GLD traded. This compares to a contract volume of approximately 275 thousand in gold and 16 million shares traded on the GLD on the highest volume day in the recent run. This is not enough to push the metal through the resistance levels.

This is occurring while the other technical measures suggest some underlying weakness building in both gold and the GLD. The following are the charts for gold and the GLD.

What is is pressing on me is that the MACD in both gold and the GLD remains negative and has not pushed above the zero line. Of course, this could all be a matter of time as new data comes in. However, the cash flow and accumulation/distribution (A/D) lines are not confirming the upswing. The A/D line is only marginally up from the recent bottom and has not broken the downtrend established earlier in the year. Additionally, the money flow statistics (Chaikin Money Flow of CMF) is negative for both gold and the GLD. This is suggesting to me that the rally does not have much support and is likely just a noise related both the election and a counter-trend rally with a broader decline.

This all said, I remain a long-term bull on gold and think that the continued actions by Central Banks around the world will make precious metals more attractive over time. It is all a matter of timing your purchase.

Friday, November 9, 2012

All that Glitters- Lighten Up on Precious Metal Stocks into Strength

I am comforted by the idea that nothing moves in straight line. Although the models were beginning to flash buy signals week, they reversed this week as the price of gold bounced nearly $50 per ounce. That is fine by me, as the buy signal on the precious metal stocks seen last week was not particularly strong and the bounce in gold may be the market pulling in buyers before another down leg.

The following are the updated results for the three timing models through the end of the most recent week. Again as a reminder, money supply is an important input in the timing models, and I use a forecast for money supply for the most recent weeks because these figures are reported with a two-week lag. In addition, I have detailed this before but negative results are better than positive results, as a gauge to time precious metal stock purchases.

3-month model

The 3-month model ended the week at 0.07, a worsening of 0.74 points from last weeks -0.67, but is an improvement over the 0.42 last month. The 3-month model is most volatile of the models.

6-month model.

As for the 6-month model, the 6-month model finished the latest week at 0.77. This is worse than last weeks score of 0.06, but an improvement over the 0.88 last month.

1-year model

The 1-year model worsened by 0.68 points over last week and finished the current period at 0.25. The indicator also worsened versus the month ago results of 0.09.

All three indicators are now in a weak sell range, especially the 6-month model, suggesting that investors lighten up on any overweighting in or stop buying precious metal stocks. I think this view is corroborated by the technical setup in gold or the Gold Spider ETF (ticker GLD). I will update my view on the technical outlook for gold later, which will be found here.