Technical observations of RossClark@shaw.ca
In the past month we have compared the gold, US Dollar and Bond action with that of 1979-81 and 1995. This report centers on the previous comparisons of Gold, the mining indices and the S&P in 1979-80... one of the best correlations with the current markets. For the parallels to remain in force the support in all three should hold around the lows of the past two weeks. Look for the miners to outperform the broad markets.
We are continuing with the assumption that the bull market in gold of the past decade is running at one third of the pace of the 1976 to 1980 bull market. This implies that there is an exciting phase just around the corner. The arrows on the following chart pinpoint the placement of the three markets. Any pullback toward $1710 in gold should be viewed as a buying opportunity.
(Click on images to enlarge)
The following chart displays just how poorly the mining stocks have performed relative to gold since 2004 and particularly since December 2010. The relationship is due for a change for the better.
The initial outperformance of the stocks during the start of the bull market and the underperformance during the recent years matches that of the 1970’s. If gold has put in a new ‘floor’ around $1600 (similar to the $380 support in Q4 1979) then the mining stock valuations should improve significantly.
As seen dozens of times in the past century and pointed out in August, once the weekly RSI(14) of the XAU/Gold ratio moves below 38 it generally takes one to three months for the mining stocks to bottom. A move in the RSI to 30 at the end of September was less common and indicative of a low in the stocks within three weeks.
Bull market of the 1970’s. Arrows identify positioning in the 2000-2011 bull market.
Seasonal chart with 2011 shifted forward by six weeks.
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