Now that the month of July is almost behind us, it's time to examine the internal signals the gold/silver stock sector has provided as to what we can expect in the month ahead. The XAU gold/silver index had a slightly negative July. But judging by some of the key stocks among the miners, August may well turn out to see improvement for the actively traded gold and silver shares as measured by the XAU.
One clue that August is shaping up to be positive for the gold/silver sector in general is one of the sector's best leading indicators, Freeport Gold (FCX). FCX has bucked the minor weakness that was reflected in the XAU index in July by making a series of higher highs and higher lows even as the XAU was drifting sideways-to-slightly lower. This lead in FCX is often a "heads-up" that the short-term situation is about to improve for the previous metals shares as a group.
While some of the technical indicators for FCX are slightly "overbought," FCX still looks like it could drift higher into August based on momentum considerations as well as the potentially bullish configuration shaping up in its 30/60/90-day moving averages (see above chart). As the "leading" indicator for the XAU, FCX appears to be leading the golds and silvers to higher levels in August than they enjoyed in July.
Another leading indicator for the gold shares are the near-term trends of some of the actively traded silver equities. When best of the silver shares trend higher relative to the XAU (as some have done in July), it usually bodes well for the XAU in the near-term. For instance, among those silver shares which put on a good relative performance compared to XAU in July was Pan American Silver (PAAS), whose chart is shown below in comparison to the XAU trend of recent weeks.
Despite the resistance pressure the XAU was under in July, and despite the recent struggles the XAU has had with its 30-day trend line (although it remains above the rising 60-day trend line), there is reason to believe the index can manage a turnaround in August. Seasonal trends are in the XAU's favor as we enter the "dog days" of summer.
Here is the seasonal performance for XAU for the past decade: In 1995, the XAU had a minor rally in August after a rough ending to the July of that year for the index. After bottoming in July 1996, XAU experienced a technical rally in August of that year. Ditto for 1997, with the XAU bottoming in July and rallying nicely into August. 1998 was the exception to the positive seasonal bias in August as the XAU was in a steep downtrend that entire year due to the extreme commodities deflation of that year (plus the bottoming of the 8-year cycle). August 1999 was another repetition of the positive seasonal pattern shown in the years '96 and '97. After bottoming after being slammed in June and July of 2000, the XAU continued bottoming in August and traded slightly higher. In August 2001 the XAU returned to its seasonal norm of bottoming in July and rallying mildly in August. August 2002 saw yet another repetition of the bottom in July followed by technical rally in August. August of 2003 witnessed an exceptional rally for the XAU as the index rose by 12. Last year's August didn't disappoint either, as the XAU bottomed in July and rallied nicely throughout the month.
In light of this almost unbroken string of positive August seasonal tendency (the deflationary 1998 being the only exception), it isn't unreasonable to expect yet another positive August for the gold and silver sector for the month ahead.
