The last few days have been good ones for gold but even more
so for the gold and silver mining stocks.
The mining sector was helped by a weak U.S. dollar, which fell for five
straight days last week.
Let’s have a look at the gold/silver mining stock group via
the XAU index. With the XAU index I’m
not going to evaluate the interim trend by looking at any trend lines or moving
averages, which can sometimes cloud the issue.
While I do believe certain moving averages are important, especially for
the immediate-term trend, I also believe there’s a danger of attaching too much
significance to moving averages. Traders
sometimes fall victim to the trap of attributing almost mystical powers to
certain moving averages, and this can be a dangerous error. When evaluating the main interim trend of the
XAU it’s often best to just look at the “naked” chart without any technical
adornments such as moving averages.
With that proviso, let’s examine the year-to-date chart of
the XAU index. As you can see, each and
every rally attempt so far this year has met with failure; the turnaround
attempts as far back as January were reversed into lower lows, which amounted
to a continuous downtrend.
By definition a reversal of the trend requires the market to
break this chain of lower highs and lower lows by establishing a final
low. In other words, the market has to
succeed in making an initial higher low and higher high, which in turn becomes
the first step in a new upward trend. As
we’ve seen already, days like today where the XAU has rallied have normally
failed to reverse the downtrend. But one
thing that has already distinguished the XAU’s chart pattern over the last few
weeks is that the index is in the process of establishing a higher low.
If the XAU succeeds in following through in the coming days
by pushing above the nearest high of 103 on a closing basis (the July 23
closing high) then we’ll have our first confirmed instance this year of a
higher low and a higher high. In other
words, we’ll have the beginnings of a genuine turnaround as opposed to another
“dead-cat bounce.”
