Week Ending 2/22/08
Dow v. Gold
Gold's out performance compared to the Dow is a sad commentary on the economy. Our major companies are in shambles, and our currency is losing purchasing power daily, not a good situation.
Gold had a good week, adding $41.70 to close at $947.80 - a new all time weekly closing high, and only surpassed by Thursday's daily close of $949.20. For the week the sovereign of sovereigns gained +4.60%.
The weekly chart of GLD shows the relentless move higher; however, both RSI and the histograms are flashing negative divergences.
Divergences can be seen where price makes a new high, yet the indicators make a lower high. Volume declined on the recent rally as well.
A day or two of positive price action could negate the existing divergences. For the short term - attention is warranted.
Silver was up 0.92 cents to close at $18.03 for a gain of +5.36%. Friday's close was a multi-decade high.
Below is the daily chart of SLV - the Silver Trust. It too indicates a negative divergence in both RSI and the histograms.
MACD shows a positive cross over. Volume has been more or less flat during the recent rally, some days up - other days down.
The signals are mixed. Once again, however, as with gold - a couple days of positive price action could negate the divergences.
Bonds v. Gold
The chart below shows the recent widening of the yield spread, or difference between long term interest rates and short term interest rates. A higher number on the chart means that the spread is increasing; a lower number shows it's decreasing.
Since the middle of 2007 the spread has been widening. Note that at the start of the gold bull market the yield spread also increased. This suggests a move up in the gold stocks (chart 2) may be coming.
Commodities v. Bonds
The chart below compares the performance of commodities as represented by the CCI Index, to the 30 Year T-Bond Yield, and to the 2 Year T-Note Yield.
In other words, commodities are being compared to the long end of the yield curve (30 year yield) and the short end of the yield curve (2 year yield). The difference between the two yields is called the yield spread.
On the chart, the 30 Year Bond Yield has been used as the zero horizontal base line. Notice that the rise in the CCI is almost the mirror image of the fall in the 2 year yield.
This shows the impact that falling short term interest rates have on commodities in general, and gold in particular (as the next set of charts show even more clearly).
Recall that short term rates have been falling more than long term
Hui v. Bonds
The next chart compares the Hui Index to 30 Year Bond Yields and to 2 Year Treasury Yields. Once again - the long and short end of the yield curve.
As the chart shows, both the 30 Year and the 2 Year yields have been falling, however, the 30 Year's decline has dwarfed the 2 Year's.
Notice in the top portion of the chart the strong rise in the Hui Index. It is almost the mirror image of the fall in the 2 Year Yield at the bottom of the chart.
Not only does this show the impact that falling short term rates have on the gold stocks, it also illustrates that a widening of the yield curve (difference between long term and short term rates) has a similar affect as well.
A widening yield curve where short term rates are declining to a larger degree than long term rates also puts downside pressure on the U.S. dollar, which has been more than self-evident.
None of this has gone unnoticed by gold. It is all gold positive and suggests that the long term bull trend will continue.
Gold Stocks v. Gold
I constantly am asked about the performance of gold stocks compared to physical gold. No matter how many times the question is answered - questions still remain.
This is understandable, as gold and the gold stocks are very volatile and neither are the easiest bull in the corral to ride. Be that as it may, the following is offered.
The chart below compares the Hui Index to physical gold going back to the start of the bull market in 2001. The blue line is the Hui; the red line is physical gold.
It is said that a picture is worth a 1000 words; if this is true, the chart below is worth 10,000 words. The Hui has gained over 1000%, while gold has gone up 225%.
There is nothing else one can say. There is nothing else that needs be said. It is what it is until it isn't. As of now it is. The trend is your friend until proven otherwise.
Hui v. Oil
Everyone knows that oil has been in a bull market. This is due to several factors, the most obvious being that we all need oil to heat our homes and businesses; and gas to run our cars and trucks.
In other words, the rise in the price of oil hits us right where it hurts - in our wallets. The same is not true with the price of gold.
The few individuals aware of the rise in the price of gold are generally those involved in either producing or consuming jewelry, as well as other commercial endeavors; or those few involved in the precious metals market as investors, which is minimal at best.
Because the demand for oil is across the board, the news media reports on it constantly. This brings more attention to the subject. Not so with gold. If anything, the establishment prefers to ignore any rise in the price of gold - hoping it will go unnoticed.
The next chart compares the Hui to the performance of oil. Oil can be seen to have had a very good rise, but the gold stock's performance is not even in the same league as oil - it is no contest. Gold stocks win hands down.
Gold Stocks & Divergence
The Hui was up 29.67 to close at 464.73 for a weekly gain of +6.82%. It did not close at a new all-time high as did physical gold.
Price bumped up into its upper trend line and bounced off lower support. The symmetrical triangle formation is compressing prices more and more. Sooner or later, something has to give - be it to the upside or downside.
RSI and the histograms show negative divergences. MACD is close to making a negative cross over.
A couple of good days of price action could change the relative strength indicator up, and keep MACD from crossing over to the downside. The histograms require more work to turn around.
Several of the individual gold stocks are flashing negative divergences, similar to those listed above for the Hui. To view these charts and those on our watch list visit our website.
There is a lot of information on gold and silver, not only from an investment point of view, but also from its position as being the mandated monetary system of our Constitution - Silver and Gold Coins as in Honest Weights and Measures.
On the main homepage are papers and articles by some of the best to be had. There are audio and videos on banking, the Constitution, and cutting edge news of interest. Many articles are archived, while others are linked.
Live time quotes on gold and silver and precious metal stocks are available, including charts for most world currencies and futures. Links to the World Bank, central banks, international monetary fund, the United Nations, and much more is offered.
There is also a live bulletin board where you can discuss the markets with people from around the world and many other resources. And best of all it is free.
Drop by and check it out. Good luck. Good trading. Good health. And that's a wrap.
Come visit our new website: Honest Money Gold & Silver Report
New Book Coming in 2008 - Honest Money