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GDR Update September 05
Gold friendly season ahead of us ? Part II
by Eric Hommelberg
September 05, 2005
In GDR Update of August 02 (Gold friendly season ahead of us ?) I suggested that we could be entering a gold friendly season for the August/September period based on gold’s historical performance over that period, see excerpt below :
If the August/September period could live up to its own historical performance then we could be witnessing a break-out of the gold shares soon since gold clocked impressive gains over the past 4 years during this period (2001 +11%, 2002 +10%, 2003 +13%, 2004 +8%, 2005 ??) END.
This scenario was boosted by a failure of the Euro to break down 120 therefore I suggested a more likely up-move for the Euro since it had broken two important down-trend lines to the upside.
When the Euro did manage to rise indeed I wrote an update ‘HUI break-out imminent ? (see GDR Update August 11-) in which I strongly suggested a HUI break-out triggered by higher gold prices (higher Euro).
Now fortunately that’s exactly what happened and the month of August showed a stellar performance for many juniors which suggests a renewed inflow of investment capital. Just take peek at the monthly ranking list of August and judge yourself ….
http://www.golddrivers.com/Juniors/juniorpagemonthly.htm
So that was August, it did live up to its expectations indeed. But what about September ? As said before the August/September period has proven to be a gold friendly period (especially over the last 5 years..).. Now September is being considered as a stronger month for gold than August and if we look at the Aug/ Sept performance gains of the HUI over the last 5 years than September has some catching up to do in order to meet the historical Aug/Sept averages…
Performance gains HUI August/September
2001 :
+20%
2002 :
+14%
2003 :
+20%
2004 :
+23%
2005 :
+5% (September not
included)
Again, no guarantees here that history will live repeat itself but let’s take a look at the Gold/HUI charts and see what they’re telling us…
Did the HUI break out indeed as suggested before ?
HUI
Indeed a break-out has occurred as suggested in ‘HUI break-out imminent’ of Aug 11 and there’s nothing here that stands in the way for a continued HUI rise. The MACD indicator flashes a buy signal (MACD crosses 9 day EMA average which tend to be bullish), RSI nowhere nearby overbought territory, so plenty of upside potential here for the HUI.
Gold
Gold has beenchopping for many months now in the $420 - $440 range. It doesn’t want to go down $420 but tremendous resistance has been encountered at the $440 mark.
But things seems to be changing now. In just one single month gold shot up +$8 two times. This is a very rare event and suggests that pressure is building up indeed.
This pressure is being fed by sky-rocketing oil prices due to the hurricane Katrina disaster (rising oil prices are a plus for gold, (see Gold & Oil Update August 19) . and for sure the middle east talk about re-aligning forex reserves into Euros this weekend doesn’t help the dollar either and should be considered as a plus for gold as well.
Gulf News reported (Sept 04):
Dubai: The UAE Central Bank will decide this month whether it should convert some of its foreign exchange reserves into euros from dollars, Sultan Bin Nasser Al Suwaidi, governor, said yesterday. END Entire press release – click here –
MiddleEsatForex.com reported (Sept 04):
RIYADH – China's revaluation of the yuan increases the possibility of the re-alignment of the Saudi Riyal to a weak U.S. dollar especially while trading links with Asia and Europe continue to grow. END.
Another positive development for the gold shares lies hidden in the Gold/HUI ratio chart. The Gold/HUI ratio topped out mid May and is dropping ever since then. A dropping Gold/Hui ratio simply means : gold-shares outperforming gold.
Now the gold/HUI ratio has dropped below its 200 dma and its 50 dma is on the verge of crossing the 200 dma to the downside which is positive.
For a detailed explanation of the Gold/HUI ratio
please read "Gold/HUI
Divorce part II" of
May 21. I suggested (in that article) that the Gold/HUI ratio was
reaching such extremes that a return towards its own 200 dma was a lot more
likely than a further exaggeration to the upside. Well, fortunately that’s
exactly what happened and a further decline of the gold/HUI ration from
these levels isn’t impossible at all.
Gold/HUI ratio
Conclusion :
The current HUI run is far from exhausted
and has plenty upward potential left.
- END -
