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Reality Check Charts
a weekly feature

 Chart Commentary by
Mitch Harris of the Reality Check newsletter

Chart Archives
12/08/99: The XAU
Chart of the Week: The XAU

Gold and the XAU took another hit following the Bank of England’s (BOE) disappointing 25 ton auction that took place on Monday, 11/29, when the Dutch Central Bank (CB) announced on Monday that they intend to sell into the market 300 tonnes of their own reserves. This was what we think is the last piece of the puzzle of the central bank sales to be made under the recent agreement of the 15 EU nations, totaling a maximum of 2000 tonnes over the next 5 years, or 400 metric tonnes per year (1 metric ton is equal to 2,204.62 pounds). The Dutch CB plans to sell the first 100 tonnes into the market as they see fit, with no further telegraphing to the market, and then the remaining 200 tonnes would be sold into the open market over the next 4-5 years.

The markets initial reaction was to continue the sell off that had already been in force since the BOE’s last auction. We think that the Dutch announcement has a better than average chance of marking the bottom of the decline with yesterday’s strong rebound.

It is hard to see it on the above chart, but Monday’s news caused the XAU to gap lower on the opening, at 63.65, against Friday’s 64.89 closing price. Tuesday morning’s sharp rebound in the gold futures helped the XAU to gap open at 64.17, against Monday’s 63.84 closing price. This created a relatively rare, and very bullish technical formation called an island reversal, as the chart shows the brief price low separated on the downside and then as it gapped back up.

We think it is especially a notably bullish omen as it happened to also mark the bottom of a very clearly sub-divided 5 wave decline from the 9/28, 92.72 high. This is labeled on the chart.

Helping to confirm this Elliott Wave Count are the indicators at the bottom of the Daily XAU chart as prices moved lower:

RSI - became neutral, but never moved lower to confirm the last low made by the index, before turning up.

2) Stochastics - You can plainly see a higher Stochastics bottom against the lower price bottom on the price

chart. These are marked with a downtrend line beneath the XAU and an uptrend line drawn

beneath the Stochastics bottoms. This is considered a bullish divergence as the indicator did not

confirm the lows made by the index.

Rate Of Change (ROC) - This "histogram" chart indicator also shows a higher low relative to the lower low

made by the price chart. This indicated that the downside momentum was weakening as prices

moved lower and also represented a bullish divergence by not confirming the price low.

 

There are other reasons to remain optimistic too, but they are not relevant to this particular report. In sum, we believe that it makes sense and indeed may become critical to be diversifying OUT of equities and into alternative such as gold. I believe that it is much more important to look at where prices may be heading in the future instead of worrying about where they have been or come from. The point here is that severely depressed gold equities may offer generally dramatic value as an alternative relative to the dramatically overvalued prices investors are willing to pay for other types of equities in today’s overheated market. Trying to time an upturn in this out of favor group may be difficult, but could ultimately be a worthwhile endeavor.

 

              Market Trend Realities (MTR) is a Registered Investment Advisory which manages personal, corporate, Trust, and retirement accounts on a fee only basis. Several low cost, flexible management fee arrangements are available. Investment Advisor, Mitch Harris has studied the Point & Figure Charting Method under the direct supervision of Michael Burke, Editor of the prestigious Investors Intelligence research organization. Management is based on a unique combination of technical analysis methods and tools which include, The Point & Figure charting method, Elliott Wave Analysis & techniques, industry group analysis, cycle analysis, Relative Strength Analysis, Stochastics, and investor sentiment studies. MTR offers a very uniquely structured managed mutual fund program using the RYDEX family of mutual funds, which offer outperformance potential whether equity markets are rising OR falling! Inquiries are welcome by calling us at (513) 421-8737, or by email at: mtr@fuse.net  

               MTR also publishes a monthly investment newsletter called "Reality Check", which offers technical commentary on the stock & bond markets, the Dollar Index, gold & gold stocks (XAU), Treasury yields, utilities, investor sentiment, and Federal Reserve policy. It also offers stock trading recommendations each month with price targets, stop loss points and insider activity. There are 4 trading portfolios, including a short selling account (we are very proud that our short sale recommendations have averaged 12.5% "compounded" during the roaring bull market of the last 5 years). Short term market commentaries are updated on Tuesday and Friday mornings, along with portfolio changes on this web page. They are also emailed for free to anyone who provides us with their email address. The regular subscription rate is $200 (US) per year. A special first time subscriber rate of $139 is available to  viewers. Samples are available upon request. MTR will be happy to send information on any of the above mentioned services. Please email us your home or business address and specify your interest(s).

 

 

 
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Last modified: April 02, 2001

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