Crude Oil, Gold and Pitchforks

3 year chart of the ratio between Crude Oil and Gold. The suggestion that a drop in crude oil means a fall in the commodity complex, and specifically in gold is only true some of the time. This chart would be much flatter if oil and gold moved in lockstep. Gold may face weakness should crude oil correct, but the price fall relative to crude oil may differ drastically just as gold appreciation failed to keep up to oil the past 2 months.

I was exploring the use of Stockcharts pitchfork tool and noticed some interesting pivot points on a 1 year chart. This was more of an experimental chart but interesting to TA folk either way no?

JR. Gold Miners vs. Gold ratio

The ratio of the Jr. gold mining shares (represented by the Venture exchange: CDNX) and the price of Gold (GLD) looks to be base-building and signaling a possible reversal of it's year long death run that has seen Jr. Mining stocks suffer while gold reached multi-decade highs.

J

Jr. Golds Relative to Bullion

Below is a chart of the ratio between the Venture Exchange (CDNX) and the price of gold (GLD). The CDNX is considered a proxy for Jr. Mining shares, and its movement the past 2 years illistrates why the miners, especially the Jr. miners have grossly underperformed against the price of gold.

A consolidation out of a nasty downtrend may be in the works. Its perhaps too early to tell but Im watching this ratio closely. When the Jr. miners regain some strength, it could be a signal that the ratio is about to turn in favour of the miners over the metal.

This chart shows a number of "fakeouts", hence why I believe this is just a seedling of a possible breakout. Notice the parallel downtrend line that has been broken to the upside with the RSI-7 confirming increased strength. The 50 MA has turned from down to flat and the ratio is above the 50 hoping to breach the 200 MA in the next few weeks.

Comments or feedback are welcome as always.

J

Gold Miners (XAU) vs. Gold Bullion

Here is a 1 year chart of the XAU/Gold ratio. A breakout may be in the works, but expect more base building in light of golds recent action below $950. The miners have tended to outperform gold on the upside the past while but the general trend has been down for some time.

J

Gold Stocks vs. Gold ratio part 3: The breakdown?

Part 1 and 2 of my recent charts highlightin the Canadian gold shares/Gold ratio can be found here.

Todays chart shows the breakdown from the symetrical triangle, but the ratio closed just above the December 2007 low. If this holds a falling wedge patten would begin to unfold. I noticed some of the JR exploration shares on my watchlist held up fairly well during this blowoff. If gold holds in the high $800's to low $900's I believe the gold shares will begin basing before making their run upwards against the yellow metal.

Bob Moriarty, President of 321gold.com wrote this story today that is the most bullish Ive ever seen him, especially in light of recent warnings he made about a gold correction.

Buy with both hands

Bob Moriarty - Mar 24, 2008

When you are searching for information about investing, you are going to run
into two totally contrary forms of information.

There are those I call the "Cheerleaders" who specialize in telling you want
you want to hear. We all know who they are. They are quite popular because they
indulge all your fantasies. Whatever you want to hear, they tell you: Gold and
silver are going to go up every single day. There is no such thing as a
correction. If the price of gold or silver goes down, even for a day, it's
because of some mysterious group they never really identify or prove exist.
There's a cabal and it controls everything in your life. You can't make a bad
investment decision, if your stocks go down, it's because "THEY" made them go
down.

I call them "Cheerleaders" for a simple reason; they stand on the sidelines
and howl at the moon. They aren't players, just cheerleaders. They specialize in
figuring out what you want to hear because that's what they are going to feed
back to you.

Then there are those who tell you not what you want to hear but what you need
to know. There are far fewer of these guys. They aren't nearly as popular as
those who tell you what you want to hear but they are the ones who will help you
make money. I think of it as the difference between signal and noise on a radio
transmitter. You need to hear the signal, that's the important part. You need to
learn to ignore the noise.

One of the ways I figure out which is which is to ask myself, when silver and
gold finally hit a major top, is this guy going to tell me to sell or is he
going to be braying "Buy" at the top of his voice? I was a commodities broker
for a very short time in 1984 and I saw the files of literally hundreds of
people who had made fortunes in late 1979 and in early 1980 only to lose every
penny because they wouldn't take profits. They were listening to the
cheerleaders and ignoring the players.

I spent ten days trying to warn people of an upcoming violent correction. It wasn't popular because it was so contrary to what people think. That's how and why I made it. When you can't buy a silver bar because the demand is so high, you are at a top. When do you expect to run out of silver bars? At a bottom?

We have had our violent correction. The number of gold contracts and silver contracts were at record highs. Before this correction ends, I expect to see those numbers cut, perhaps in half. Most of the damage has been done to gold and silver but another month or so of correction would be about right.

This is going to be a really weird prediction. Last week I nailed the biggest
and fastest gold and silver correction in history. It was the best call anyone
has made for 28 years on gold. This week I'm going to predict gold shares are
going to explode upwards starting immediately. ESPECIALLY the juniors.

Now that's a switch. But here's the logic behind it. If you look at the XAU
over gold, it shows a low in the ratio in May of 2005 and another last August.
From May of 2005 until the next high in Feb of 2006, the XAU climbed from about
78 to 155. From the low in August of last year to November, the XAU rocketed
from 125 to 190.

The juniors didn't participate in the rally since August. Many are the same
price they were in August. Some are lower. Jim Sinclair and John Embry believe
that hedge funds have shorted the juniors. I don't totally buy that. If there
was some giant short position, it should show up. And while short positions in
many juniors have gone up, they aren't much above 1%, which is nothing for a
NYSE stock. So I'll just say that I'm not totally convinced. But if they are
right, those same shorts now are going to have to cover. Gold could easily
correct for another couple of months and the gold shares and especially juniors
could rocket.

The lowest the XAU over gold ratio has been in three years is .183. I think
that's the lowest for five years but I can't prove it with my software. On
Thursday of last week, the ratio dropped to .183 and closed at .187. Thursday of
last week should have marked the single best day to be buying gold shares in the
last five years. There is nothing saying the ratio can't go lower but if it
does, it just means it's building up more pressure when it does explode.

After a short and brutal correction, gold will resume its climb. Gold and
silver have not peaked. They are money and when all currencies fail, they will
be the last man standing. We will go back to a gold standard not because anyone
wants to but because there will be no other alternatives. Whatever country goes
to a gold standard first will have the new world's reserve currency.

Buying gold stocks in the middle of a gold correction may seem a bit contrary
but contrarians make money. Gold moved from $650 to $1030 without moving the
juniors. If it can do that, it can move from $1030 lower and still have a gold
share boom. I'm a buyer and you should be buying with both hands. You are
always playing the odds and the odds favor a 50% move higher in the next six
months. That is what has happened every other time the ratio got so off
balance.

Mar 24, 2008

Bob Moriarty

Gold Miners vs. Gold part 2

My first chart showing the Canadian Gold Miners ETF vs. Bullion Ratio on March 4th, 2008 highlighted the growing body of evidence that Gold Shares (more specifically Canadian Miners) appear to be bottoming and ready to break out from their 2 year lag relative to Gold Bullion.

Ive posted an update of this same ratio for March 14th, 2008 below.


With the Federal Reserve likely to announce further rate cuts this coming Tuesday and Gold Closing above $1000 for the first time, the mining shares have yet to reflect any sort of speculative fever. I would not be surprised to see the metal hold firm while the shares suffer alongside any serious market downturn over the next few weeks, but I would also expect the miners to recover fast and make new highs towards the end of the year and this ratio should show some marked improvement.

If this will translate into a run up in the Junior Mining sector has yet to be seen, if banks remain landlocked over solvency issues then the financing for new projects may remain tight until Bonds begin to reflect inflation concerns and the flood of money will exit in search of hard assets.


Update/ 6:52 PM:

This editorial posted below from Bob Moriarity, president of 321gold.com echos my sentiments regarding the ratio of gold mining shares to the metal. The rest is a series of dire warnings that I can only watch in wonder if they should ever come true. These truly are interesting times.

A Time for Caution, Update 1

Bob Moriarty
Archives
Mar 17, 2008

I wrote a piece 10 days ago suggesting caution on the part of my readers. Gold and silver are at bullish extremes; the dollar is at a bearish extreme. In any normal time, we would expect to see a correction, probably violent. I still believe we will have a correction shortly but we may no longer control anything. While the metals and the dollar are showing extremes of emotion, the shares of mining companies still seem to be very bullish based on my read of the XAU over gold.

My readers are smart enough to realize we are not in normal times. We are in a Domino Depression where we can expect two or three hedge funds to collapse every day, banks to go under on a regular basis. Northern Rock collapsed last fall, I for one, cannot understand how the rest of the banking system has not failed.

It's starting again; we are in uncharted waters where no one quite understands where we are; we've never been here before. Bear Sterns crashed on Friday last. On Monday March 17th, President Bush meets with the infamous Plunge Protection Team. The alternatives are everything from a Bank Holiday to a nuclear attack on Iran to Bush declaring a "National Emergency" and naming himself Fuhrer.

One of the very real alternatives is Weimar style inflation. That's what the government would like to do; it's a question of if the rest of the world will go along with it. All it would take for a total and immediate failure would be for China or Russia or Japan or Saudi Arabia to dump the dollar.

It's a time for caution. We SHOULD have a violent correction in gold and silver and the dollar based on emotion and government intervention but we could see $3,000 gold in a week or the start of a living nightmare brought to you by the Gang of Fools in Washington. No one knows.

I'm tempted to say the government's ability to deceive is far greater than I ever imagined and the stupidity of Americans equally unimagined. We may well coast into Armageddon at a nice measured rate or we could see a freeze-up next week. The time will come when there is a total freeze-up in the banking system and all the banks will close. I just don't know if it's next week or not.

It's a time to be cautious. We are not entering a recession; it's a full-blown Domino Depression. It's not a time to be in CDs or Real Estate or speculating in the stock market. You need to own real things of some real value. Our world is changing at an ever-increasing rate. Own some physical gold and pay attention to what is going on.


Mar 16, 2008
Bob Moriarty
President: 321gold