Black gold versus yellow gold. Which one is in a better position, technically? The two major indices which reflect gold stocks versus oil stocks, the XAU and the XOI, are hanging in the balance right now. Which one is likely to break down (short-term) and which one is likely to break up?

The charts seem to suggest weakness in XOI and developing strength in XAU. The XAU index has been trying to bottom above the 80 area and so far has done a good job of it. There looks to be strong support around this level and it should be enough to enable XAU to rally this month. It doesn't hurt XAU's chances of a rally that the U.S. dollar index, which typically moves inverse to the gold price, has been very weak of late, breaking below its 30-week moving average.

Another thing in XAU's favor is the fact that it has pivoted off a major historical support between 75-80 in recent weeks. If the gold bears had complete control over the market they should have been able to break the XAU below 75, but they failed. This is an important sign the bears don't have control over XAU right now. The ball is in the bull's hands, now it's up to them to run with it.

The XOI Oil Index is looking toppy and is facing resistance from its recent highs between 620-630. This reflects the current weakness in the crude oil market, as reflected in the recent decline beneath the $40/barrel psychological level.

A recent headline from the Financial Times captured the psychological and technical importance of lower oil prices, namely that it removes a major obstacle in the way of a broad market rally. Declining oil prices can only help lift stocks and gold stocks.

Speaking of market psychology, another major psychological factor that has weighed heavily on the oil and gold markets this spring, but which has recently subsided, is China. Fears of a major economic recession in China (and hence a slowdown in commodities demand) have slackened recently. As the FT put it in a recent article, "earlier fears about China's slowdown now appear to have been overdone."

It would appear from a technical assessment of the markets that the XAU has a good chance to rally in June, while XOI will have its work cut out for it and faces selling pressure.