Is this the top for the gold sector?
Below is an excerpt from a commentary originally posted at www.speculative-investor.com on 13th September 2009.
Current Market Situation
The following chart shows the HUI and the HUI/gold ratio. Of importance is that the HUI traded as much as 22% above its 50-day moving average on Friday and ended the week 19% above this moving average. There is no telling how 'overbought' a market will become before it begins to retrace, but note that the HUI has rarely, in the past, been as far above its 50-day moving average as it is right now. Also of importance is that the HUI/gold ratio ended last week at a new high for the year. This is important because there is a tendency for the HUI/gold ratio to reach an intermediate-term peak well in advance of the HUI.
XGD is a fund that tracks the performance of the gold sector in Canadian dollar terms. Whereas US$-denominated gold-stock indices such as the HUI and the XAU have just surged to new highs for the year, the daily XGD chart displayed below shows that the gold sector has not yet broken out in C$ terms.
Some junior gold mining stocks have had huge upward moves this year, but there are still plenty that haven't gained much ground at all. Furthermore, there is often no company-specific reason for the lacklustre performance, other than an absence of exciting news. Pediment Gold (TSX: PEZ), which was added to the TSI Stocks List early last week, is a good example. There are many other examples, some of which we intend to highlight at TSI over the weeks ahead as long as our overall market outlook doesn't change.
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