Monday, November 8, 2010

Gold and the Acid Test:

Last week we looked at the TSX listed BMO Jr. gold ETF (ZJG) plotted above the big cap Barreck Gold (ABX). With the ZJG posting a series of new 52-weeks we needed the lagging Barrick to break into the mid $50 range to confirm the current advance in the precious metals complex.

At the close Monday Barrick on the TSX rose 4.74% on 3.7 million shares to close at $51.48 – a new 52-week high – but not quite an all time high. On the NYSE Barrick rose 4% on 12 million shares to close at $51.21 a new 52-week high but not quite an all-time high. Our short term daily chart on Barrick tells us that while the Monday advance was impressive – the move was not a clear break out – note the two targets $51 and then $55. Also the money flow is not at the 2008 and 2009 peaks. The relative (lower plot) is improving but not what we need to get the confirmed break out. If Barrick fails here the current run in the gold complex could be a bull trap – stay tuned


Glenn said...

Hi Bill,

Great analysis - thanks.

With gold moving higher, partly being influenced by the drop in the US dollar, how does that impact the "acid test"? Or does it?

Shawn Severin said...

For the record, I'm no gold bug. I detest gold as an asset class due to the fact its value is entirely subjective. Nevertheless, why choose Barrick to represent the entire big cap gold sector? Why not simply observe the relative price performance of the XGD vs the TSX and/or the ZJG. The XGD has in fact broken to new highs after a long price consolidation period that began in 2006. said...

Hello Glenn $ Shawn

The acid test is based on the speculative stampede into the smaller names (the ZJG) vs the big "safe" names but - when the money managers get nervous they will divert profits back into the big names so when Barrick become a "value" play - that is the end.

BC - Getting Technical