STRONG EURO GIVES BIG BOOST TO GOLD SECTOR -- XAU BREAKS THROUGH MAJOR RESISTANCE -- BARRICK IS A GOLD LEADER
EURO BOTTOM BOOSTS GOLD... On Monday I wrote about the likelihood that the Euro (and other major foreign currencies) were bottoming against the Dollar Index which had stalled at major resistance near 90 (August 01, 2005). That trend is accelerating today. Chart 1 shows the Euro climbing to the highest level in two months as the dollar continues to soften. I also wrote on Monday that gold (and gold stocks) would be one of the major beneficiaries of a stronger Euro and weaker dollar. Chart 2 shows the Gold ETF (GLD) gaining the equivalent of $4.40 today after climbing over its 200-day average on Monday. The big news today, however, is the strong action in gold stocks which are up close to 5% and are by far the day's strongest stock group. They're also having a bullish chart day.
Chart 1
Chart 2
XAU BREAKS RESISTANCE BARRIERS ... The Gold & Silver (XAU) Index is breaking through two important resistance barriers today. Chart 3 shows the XAU trading above its 200-day average for the first time in five months. An even more important breakthrough is seen in Chart 4 as the XAU is breaking a down trendline starting at the end of last year. In my view, that's a bullish combination. The relative strength line for the XAU at the bottom of Chart 4 is also on the verge of breaking its 2005 down trendline. Today's bullish breakout in gold shares is part of move back into commodity-related stocks resulting from a weaker dollar.
Chart 3
Chart 4
NEWMONT MINING LEADS MATERIALS HIGHER ... Yesterday I wrote about new buying in the basic materials group led by aluminum, copper, and steel stocks. Today it's gold's turn. The top gainer in the materials sector is Newmont Mining which also happens to be the biggest stock in the XAU. Its daily bars show NEM moving up to challenge initial resistance near 40. The monthly bars in Chart 6 show NEM bouncing off two long-term support levels. One is at last year's low near 35 (first arrow). The other is the five-year support line starting at the end of 2000 (second arrow). That's a logical spot for this gold bellwether to turn back up. The second biggest stock in the XAU is Barrick Gold which has a much stronger chart picture.
Chart 5
Chart 6
BARRICK NEARS UPSIDE BREAKOUT ... The daily bars in Chart 7 show Barrick Gold challenging its 2005 highs around 26. Upside volume over the last two days increases the odds for those highs to be exceeded. The monthly bars in Chart 8 show that ABX is also on the verge of hitting a new eight-year high. While Newmont has been a gold laggard during 2005, Barrick has been a gold leader. That can be seen in the ABX/XAU ratio line at the bottom of Chart 8. After lagging behind the XAU in 2001 and 2002, a rising ratio line during 2005 identified ABX as one of the strongest stocks in the XAU. If you're looking for gold value, Newmont is the safer bet. If you're looking for gold leadership, Barrick would be my choice.
Chart 7
Chart 8
