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Gold Update

Bob Hoye
Institutional Advisors
Mar 23, 2009

Technical observations of

Wednesday started with a bullish divergence in the gold price verses the XAU, HUI, GDX and TSX Gold Index. Gold was below $890 with an RSI(14) reading of 40. The related stocks were testing, but had not taken out the support of March 10th. It had the makings of developing into an important low. Then the FOMC communiqué came out and put a catalyst into the market. The announcement of the purchase of up to a further $750 billion of mortgage backed securities, $100 billion in agency paper and $300 billion in longer term Treasury securities was immediately interpreted as more monetization of the debt by printing money out of thin air. The US Dollar took it on the nose.

Gold concluded Wednesday with a "outside up" reversal, having made a new five week low and then closing above the previous day's close. Comparable examples are displayed below. Note that it is common for the price to rally for a few days, but then make a deep 60% to 80% retracement toward the low of the outside day. The only example to retrace less than that was January 2008 when prices made a new high and then a 50% correction. For now we would advise using any $50 pullback by March 27th as a buying opportunity. Risk should initially be controlled at $890.

click image to enlarge

We are now left with a clear cut bullish divergence at the lows and the stocks are leading nicely on the upside as of Thursday. Having been a news related rally it is very important that this week's lows hold because the next support does not come into play until $790.


Mar 20, 2009
Institutional Advisors

Hoye Archives

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