SILVER CONTINUES TO LEAD GOLD HIGHER -- A LOOK AT GOLD AND SILVER LEADERS

GOLD ETF NEARS WEEKLY BUY SIGNAL ... I suggested yesterday that gold could be one of the biggest beneficiaries of Fed inaction on rates. That was predicated on my view that the dollar would weaken. In today's trading, the dollar is indeed dropping and gold prices are rising. This is an opportune time to review the precious metals arena with a view to identifying market leaders in the group. But first a look at the two precious metal ETFs. With gold prices trading $8 higher today, the streetTracks Gold Trust (GLD) is within a hair of a new weekly SAR buy signal (which would occur at 65.22). Gold bullion has already done so. So has silver. Chart 2 shows the Silver iShares (SLV) having given an SAR buy signal last week and rising to a new three-month high. That's a positive sign for gold since both markets usually trend in the same direction. The simplest way to get exposure to either of those two commodities is via their respective Exchange Traded Funds. At the moment, silver is the stronger of the two.

Chart 1

Chart 2

XAU AND HUI TEST JULY HIGHS ... The next two charts show the PHLX Gold & Silver (XAU) Index and the AMEX Gold Bugs (HUI) Index both in the process of challenging their July highs. Both indexes have been outperforming the stock market since mid-June. Needless to say, a close above their July highs would turn their short- to -intermediate trends upward. Within those two precious metal indexes, however, several individual stocks have already turned up. Not surprisingly, several of them are silver stocks. In fact, the biggest percentage gainer over the last month has been Pan American Silver.

Chart 3

Chart 4

SILVER LEADERS ... There are three silver stocks included in the XAU and the HUI indexes. All of them have already exceeded their July highs and are among the group's leaders over the last month. Pan American Silver (PAAS) has gained 16% over the last month to pace the entire group. Chart 5 shows the stock trading at a three-month high. Charts 6 and 7 show Coeur D'Alene Mines (CDE) and Hecla Mining (HL) not far behind. Their rising relative strength lines are measured against the XAU which is the group benchmark. Their combined relative strength is a reflection of silver's superior strength. There are some gold leaders as well that have already turned higher.

Chart 5

Chart 6

Chart 7

GOLD LEADERS ... Charted below are three gold stocks that have been rising much faster than either of the gold indexes. IAMGold (IAG) is already challenging its May peak (Chart 8). So is Kinross Gold (KGC) in Chart 9. Barrick Gold (ABX), which is shown in Chart 10, is especially noteworthy. The stock is trading at a three-month high and has been outperforming the XAU Index since the start of July. Why that's significant is because ABX is the biggest stock in the XAU (21%). Some other gold leaders are Agnico Eagle Mines (AEM), Golden Star Resources (GSS), and Randgold Resources (GOLD). The fact that so many precious metal stocks are trending higher bodes well for the metals and the group.

Chart 8

Chart 9

Chart 10

PRECIOUS METAL MUTUAL FUNDS ... Mutual funds also offer entry into the precious metals group. Charted below are Fidelity Select Gold and Rydex Precious Metals funds (plotted through Tuesday). Both look very similar the XAU and HUI indexes. Not surprisingly, both funds ranked first in their respective sector rankings over the last two weeks.

Chart 11

Chart 12