USING GOLD MUTUAL FUNDS -- POINT & FIGURE SIGNALS ON PRECIOUS METALS FUND -- A LOOK BACK AT GOLD BOTTOM IN MAY
ANOTHER GOLD FUND... Earlier in the week, I wrote about a Canadian gold-mining ETF that's traded in Toronto (Chart 1). A number of readers messaged me about a closed-end gold fund traded on the American Stock Exchange. It's called the Central Fund of Canada Ltd (CEF) and is shown in Chart 2. I don't know much about it, but it's chart doesn't seem to reflect the recent strength in gold stocks. I'd be careful using it. Until something more suitable comes along, I believe that the best way for most investors to play the gold trend is through a gold or precious metals mutual fund.
Chart 1
Chart 2
FIDELITY AND RYDEX GOLD FUNDS ... Charts 3 and 4 show the Fidelity Select Gold and the Rydex Precious Metals mutual funds (plotted through Thursday). Either of them could serve as a vehicle for riding the gold-mining trend. These funds are included in the Stockcharts.com Fidelity and Rydex Funds market carpets (Fidelity Funds Carpet). There's also a ProFunds carpet which includes a Precious Metals Fund (PMPIX). And there are others not listed here. Chart 5 shows a point & figure chart of the Rydex Precious Metals Funds. It's worked pretty well. An initial buy signal was given in February 2001 when a column of x's first exceeded a previous x column. Five other buy signals were given over the next three years as the uptrend continued to the end of 2003. The first sell signal was given this January at 41 and another in April at 40. A new buy signal was given this July at 37 and another in September at 38. Another buy signal would take place at 43. Anyone following that last signal could place a sell stop at 38, which is one box below the last o column. There were also signals on the weekly bar charts that called for purchases during the May/June period.
Chart 3
Chart 4
Chart 5
A LOOK BACK AT MAY 28 CHARTS ... Some readers have asked if this is a good time to be buying gold stocks. Earlier in the week I suggested that this was a more risky level for new purchases than was the case several months ago. That's simply because prices are much higher and gold stocks are in an overbought condition. Which brings us to the next two charts. I show these for the sake of historical perspective. And also to show (especially to newer readers) that these trends didn't just start over the last month, and that I've been writing bullish comments about gold and gold stocks for months (even back to 2002). [My book on Intermarket Analysis, which was written last year, also makes a bullish case for gold]. Both of these charts were shown in a May 28 Market Message to make the case that gold and gold stocks had reached levels of support and were in oversold conditions (May 28, 2004). In other words, a good time to get back on the long side. The headlines accompanying the charts were: "Dollar Rally May be Over" (it was), "Gold Has Retraced 50%", and the "XAU is in Support and Oversold". The circles show where both markets were when the bullish comments were written on May 28. Gold had retraced 50% of its 2003-2004 upleg at $380 and was turning up. And its weekly stochastic lines were also turning up from oversold territory under 20 (see arrow).
Chart 6
Chart 7
XAU BOUNCES OFF SUPPORT LINES DURING MAY ... Chart 7 showed that the Gold (XAU) Index was bouncing off its 75-80 support zone in late May, and was bouncing off its up trendline (see circle). And its weekly stochastic lines were oversold (see box). The lines on both charts are the exact lines shown at the time. The charts, of course, include the action since then. Gold touched $438 today which is a new 16-year high. The XAU is breaking through its April high and is headed to its old high. Anyone buying at these levels, however,has to realize that this isn't the best time to be doing it. The right time was during May and June. I understand the frustration of gold late comers. But I can't turn the clock back.
