WEAK DURABLE GOODS REPORT SINKS DOLLAR -- PUSHES GOLD OVER $400 -- GOLD STOCKS RISE ABOVE 50-DAY AVERAGES -- CRB IS TURNING UP
GOLD CLIMBS OVER $400... This morning's weaker than expected May durable goods report pushed the dollar lower against the Euro and the yen. That pushed gold prices $6.60 higher for the first move over $400 since mid-April. Gold stocks are rallying 3.7% and are the day's strongest market group. Most commodity prices jumped today as well. The CRB Index climbed 3.62 points with 12 of the 17 commodities gaining ground. Precious and industrial metals were among the top gainers. That also helped industrial metal stocks like Alcoa and Phelps Dodge. Last Friday I focused on the bullish impact the falling dollar was starting to have on the CRB Index and stocks tied to industrial commodities. Today I'm looking at the bullish impact on gold-mining stocks.
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GOLD INDEXES CLEAR 50-DAY LINE... The two gold stock indexes -- the XAU and the HUI -- are climbing over their 50-day averages today for the first time in nearly three months. Their relative strength lines are also turning up. The fact that their upturns concide with gold moving back over $400 isn't a coincidence and adds more credibility to the idea that gold and gold stocks have probably bottomed.
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GOLD LEADERS... Two of the top gainers in basic material stocks today are shown below. Freeport McMoran Copper & Gold cleared its 50-day average last week and is now challenging its May high jus tover 34. A close over that initial chart would turn its short-term trend higher and pave the way for a move toward its 200-day average. Newmont Mining (the largest stock in the XAU) is just now clearing its 50-day moving average.
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GOLD AND GOLD STOCKS RALLY FROM LONG-TERM SUPPORT... Back on Friday, May 28 I posted a Market Message giving a positive longer-term view of gold and gold stocks. You might want to refer back to it. The first headline was "Dollar Rally May Be Over" which would be bullish for gold; the second headline was "Gold Has Retraced 50%" and had reached long-term chart support near $370. The second paragraph ended with "This would be a logical spot for gold to attract new buying". Chart 3 showed the XAU Index to also be oversold and in chart support. Chart 6 is an updated version of the XAU chart plotted on May 28. It shows the XAU bouncing off a two-year up trendline and chart support in the 75-80 zone. It also shows the weekly stochastic lines turning up from oversold territory under 20. Those positive long-term charts give more meaning to this week's upturn in gold and gold stocks.
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CRB TURNING UP... Last Friday I talked about the falling dollar starting to boost the CRB Index. I showed the CRB Index in an oversold condition (daily stochastics under 20) and trying to stabilize above its (red) 200-day moving average. Today's dollar drop pushed the CRB to a new two-week high and put it slightly above its (blue) 50-day average. 12 of its 17 commodities rose. It looks to me like the major bull trend in commodities may be getting ready to resume. As I also suggested last week, that would give a boost to basic material stocks tied to those commodities -- including aluminum, copper, gold, and silver.
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