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Gold and Related Silver and Stock Ratio Analysis

Commodities / Gold and Silver 2010 Dec 15, 2009 - 08:33 AM GMT

By: David_Petch

Commodities

Diamond Rated - Best Financial Markets Analysis ArticleThe daily chart of the gold/silver ratio is shown below, with upper Bollinger bands in close proximity to the ratio, with lower 21 and 34 MA BB’s in close proximity to each other and the lower 55 MA BB starting to curl down, indicating the potential for further upside. Full stochastics 1, 2 and 3 are shown below in order of descent, with the %K above the %D in all three instances. Based upon extrapolation of the %K in stochastic 1, there is the potential for the ratio to continue heading higher over the next 1-2 weeks before topping out. Generally, the gold/silver ratio rises during periods of economic weakness and declines during economic stability.


Figure 1

The gold/oil ratio is shown below, with upper Bollinger bands rising above the index, suggestive a potential top was put in place. The lower 21 MA BB is rising to the index, suggestive the ratio has the potential for a 2-3 week decline.  The USD index is shown in black; generally there is a loose correlation between the USD and the gold oil ratio, but there has been a noted divergence since August of this year. Full stochastics 1, 2 and 3 are shown below in order of descent, with the %K beneath the %D in 1 and above the %D in 2 and 3. There is the potential for the ratio to continue topping out over the course of the next week but a one month rally indicates a decline is imminent. The important item to note from this chart is the divergence between the ratio and the USD, as strength in the ratio normally indicates strength in the dollar.

Figure 2

The weekly chart of the HUI/gold ratio is shown below, with gold shown in black. Upper Bollinger bands are above the index, suggestive a top was put in place. Lower Bollinger bands are rising to meet the index, suggestive that further downside potential exists the ratio. Weakness in the HUI/gold ratio suggests that gold will continue to rise or exhibit greater strength in price relative to gold stocks. Full stochastics 1, 2 and 3 are shown below in order of descent, with the %K beneath the %D in 1 and 2 and above the %D in 3.

Figure 3

Gold

The daily chart of gold is shown below, with upper Bollinger bands above the index, suggestive that a top was put in place. Lower Bollinger bands continue to rise, suggestive that further downside potential exists. Full stochastics 1, 2 and 3 are shown below in order of descent, with the %K beneath the %D in all three instances. Based upon the sharp decline of the %K in stochastic 1, weakness in gold is likely to continue for another 1-2 weeks before basing and retracing the decline. Overall, weakness in gold could extend 6-8 weeks out based upon positioning of the %K in stochastic 2 if the dollar continues to exhibit strength. As before, it is not recommended to establish any long positions. I will update the Horizon Beta funds tonight for those wishing to have trading vehicles.

Figure 4

The weekly chart of gold is shown below, with a notable shooting star doji from a few weeks ago, indicating a potential top was put in place. Upper Bollinger bands are starting to rise above the index while lower 21 and 34 MA BB’s curled up, suggestive that a top was put in place. Full stochastics 1, 2 and 3 are shown below in order of descent, with the %K above the %D in all three instances. There is a strong potential that a top was put in place based upon the technical’s; it is also important to note that the parabolic trend in place since April 2009 is in jeopardy of being violated with any further weakness in gold, which would indicate a potential decline to the breakout point, or between $950-1000/ounce; this is something to watch carefully over the next few days.

Figure 5

The monthly chart of gold is shown below, with upper Bollinger bands above the index, suggestive that a top was put in place. Full stochastics 1, 2 and 3 are shown below in order of descent, with the %K above the %D in 1 and 2 and beneath the %D in 3. Although there is weakness on the daily and weekly charts, it is better to use positioning of the stochastic on them than the monthly due to the longtime frame required to indicate a switch in trend. If there is further weakness in gold, it is highly possible that another 1-2 months of topping action occurs before any decline to test the breakout occurs. For now, based upon the gold charts, particularly Figures 4 and 5, weakness in gold is likely to persist for at least the next two weeks.

Figure 6

The short-term Elliott Wave count of gold is shown below, with wave C potentially forming. If this count is correct then gold should have significant upside after it is complete. As mentioned earlier, gold must show some strength over the course of the next 4-6 trading days so the parabolic trend line (not shown) is not violated, otherwise the count shown below is valid and in effect. If in effect, weakness in gold could persist for a 2-3 month period.

Figure 7

The mid-term Elliott Wave count of gold is shown below, with wave (Y).[A] likely forming. I am also going to do the USD again tonight to provide a better indication of what exactly is going on. If weakness in gold persists through next week, then probabilities arise that weakness persists 2-3 months out before a bottom is put in place.

Figure 8

By David Petch

http://www.treasurechests.info

I generally try to write at least one editorial per week, although typically not as long as this one. At www.treasurechests.info , once per week (with updates if required), I track the Amex Gold BUGS Index, AMEX Oil Index, US Dollar Index, 10 Year US Treasury Index and the S&P 500 Index using various forms of technical analysis, including Elliott Wave. Captain Hook the site proprietor writes 2-3 articles per week on the “big picture” by tying in recent market action with numerous index ratios, money supply, COT positions etc. We also cover some 60 plus stocks in the precious metals, energy and base metals categories (with a focus on stocks around our provinces).

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Disclaimer: The above is a matter of opinion and is not intended as investment advice. Information and analysis above are derived from sources and utilizing methods believed reliable, but we cannot accept responsibility for any trading losses you may incur as a result of this analysis. Comments within the text should not be construed as specific recommendations to buy or sell securities. Individuals should consult with their broker and personal financial advisors before engaging in any trading activities as we are not registered brokers or advisors. Certain statements included herein may constitute "forward-looking statements" with the meaning of certain securities legislative measures. Such forward-looking statements involve known and unknown risks, uncertainties and other factors that may cause the actual results, performance or achievements of the above mentioned companies, and / or industry results, to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements. Do your own due diligence.

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