Golds: Where the base metal mining stocks are testing the highs in establishing a cyclical peak, the gold sector is drifting after enjoying a brief initial rally that may have set the end of a cyclical bear.
Gold, in dollar terms, recently slipped nervously down to 419 on July 14. This compares with the last big low of 412.6 in February. That was when the dollar index was at 85 and, now at 90, it seems that gold has been performing well against a firmer dollar.
Gold has also been gaining in real terms as our gold/commodities index recovered from 185 on June 1 to 202 on July 1. This needed a test of the low and perhaps the 188 on July 13 was it. This week it's at 194 and breaking above 202 would set the uptrend.
Of course, it's important to look to the pending increase in investment demand. This could eventually be consistent enough to gradually increase gold's dollar price even in the face of a steady to firm dollar index.
As we have been noting, this will be indicated by the next phase of credit spread widening and the reversal in the treasury curve from flattening, which is symptomatic of the boom, to steepening, which is one indication of the inevitable contraction.
The gold/silver ratio is also part of the financial equation. It goes down in a boom and, in declining from 82 in June, 2003, it anticipated the end of the bull market in gold stocks at the end of 2003.
Going the other way, when it increases it anticipates or confirms a contraction and therefore a contra-cyclical bull market for gold stocks. The low for the gold/silver ratio was 55.3 on June 1, which seems to be a huge test of the 56.6 low in December.
The ratio recovered to 62 on July 5 when it slumped with the party to 59.6 today.
The June low could be tested.
PIVOTAL EVENTS JULY 28, 2005
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