A question everyone seems to be asking right now is, "Has the XAU seen its high for now, or is there more upside potential in the months ahead?" My answer to that question, plain and simple, is that I believe the XAU does have considerably more upside potential in the year ahead based on my assessment of its long-term chart. Below you will see an updated version of the XAU chart which shows this upside potential.
As you can see here, the XAU is just starting to accelerate on the upward-curving part of this large parabolic bowl pattern and there seems to be more potential above from the looks of this chart. Yet when compared to the chart of gold, it would appear that gold has nearly come close to exhausting the upside potential of its parabolic bowl while the XAU hasn't. How is this possible? Simply because the XAU index contains a few "laggards" that haven't fully benefited from the strength in the gold stock market rally of the past year. And what are these laggards? I consider them to be Agnico-Eagle (AEM), Durban Roodepoort Deep (DROOY), Gold Fields (GFI), and Harmony Gold Mining (HMY). You might even include Kinross Gold (KGC), depending on how you define "laggard."
Now if you look at the charts of the principal XAU components, such as Barrick Gold (ABX), Anglogold (AU), Freeport Copper & Gold (FCX), Goldcorp (GG), Newmont (NEM), and Placer Dome (PDG), you will see most of these mid-tier and senior producers have already enjoyed an impressive and sustained uptrend throughout most of this year. Yet most of the stocks mentioned previously have either lagged behind or in some cases flat-out "dogged it."
If you analyze each individual component of the XAU, I think you will see where the XAU's upside potential in coming months is going to come from: it will come mainly from the laggards, in my opinion. In the realm of investing, as with life, the old saying "every dog has his day" applies and these fall-behind stocks should have their day in the coming months based on my assessment.
Let's break some of these potential "catch up" stocks one by one. First there is Harmony (HMY). Harmony has been gradually establishing a series of higher lows and has already established two dominant uptrend lines: an interim uptrend from the May lows and a short-term uptrend line from the July lows. A well-defined resistance area exists near $16 and a potentially bullish triangle pattern can be seen in the daily chart for HMY (see below). Once above $16, HMY will be free of its confining overhead supply and free to test the higher levels of $18-$19 and above. This is a stock worth watching as we head into 2004.
Next there is Agnico-Eagle (AEM), currently etching out a potentially bullish parabolic bowl in its daily chart. Note the parallel lines that cross between $11.50-$12.00, which are formed by pivotal points from the past six months. In my estimation, once AEM gets decisively above $12 it should be able to rally along the side of the upward-curving bowl and make some great gains (which would make up for "lost time" over the past 2-3 months).
Finally, there is Gold Fields (GFI), which also sports a bullish-looking bowl pattern in its daily chart. A 6-week downtrend line off the October highs currently intersects the $13.75 area, so a breakout above this line would be a bullish confirmation signal for GFI, allowing it to ride along the up-curve to higher highs.
Taken one by one, you can see how these XAU components give the index as a whole some more upside potential in the near future. Not every XAU component is "overbought" right now, and this is a good thing! It leaves more room for higher highs to be made in the leading gold stock index. Here's to a bright and happy 2004 for the XAU!