Wednesday, August 15, 2007

Nowhere to hide

I worked in the finance business world for 35 years. One of the fallacies that I heard, and that I am still reading these days, is that one should buy precious metal stocks as a hedge to the dramatic downtrend world markets are going through.

The real truth is when the market goes down, everything goes down. That’s because, if the economic activity slows down, gold companies will be impacted just as much as any other sector of the economy.

XGD is an iUnit which is a portfolio of Canadian gold stocks. Does anybody remember when this portfolio reached a top of $86.50 December 5, 2006? It has been in a downtrend (red line) since then. How many times does one have to be alerted to exit when you are in a downtrend? There have been 5 such signals (red arrows) every time support was broken. There was a buy signal when resistance at $70 (blue horizontal line) was broken (blue arrow), and the ETF was severely shorted by the pros when it reached the downtrend line at $75 (open red arrow). It reversed to a column of “O” and it has been downhill since then. Nowhere to hide…

Yesterday, the US$ broke resistance at $81.09 and it looks to me that we now have a short term upswing as shown by the chart below:

In the meantime, XGD closed at support and appears to be in a short term descending triangle which is usually a bearish pattern.

What do you think might happen?
I for one would not put any of my money in Gold right now.

The Word

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