Philadelphia Gold/Silver Sector Index (XAU)

Is A Major Rally In Gold & Silver Mining Stocks About To Emerge?

Posted in Philadelphia Gold/Silver Sector Index (XAU) on February 12th, 2014 by admin – Be the first to comment

By Jim Donnelly, Olson Global Markets

When looking at the Philadelphia Gold and Silver Index (XAU), an index comprised of sixteen precious metal mining companies, it appears that a multi-year bottom has likely been made. A test of long-term trend line support at 79.73 was made on December 19 and has resulted in a 15.7% advance to 92.22 by the close of trading last week. That being said the upside potential of this turn-around in mining stocks may have only just begun.

On monthly bar charts, stochastic technical oscillators remain in a deeply oversold condition, with the corresponding Relative Strength Indicator (RSI) just beginning to turn higher from relatively weak readings. Moreover, the upswing since the December low only represents an 8.13% rebound of the steep 232.72-to-79.73 drop that began in December 2010.

With gold and silver holdings clearly out-of-favor at the moment, the formation of two new private equity ventures last week combined with a number of existing buyout groups eying cash-strapped mining companies could trigger a revival in acquisitions or possible partnerships.

To date, a number of large gold and silver companies have already begun the process of selling under-developed projects in order to reduce debt levels and lower maintenance costs since traditional borrowing sources have steered away from this area in recent years. That, of course, was due to the severe drop in precious metals prices that began in September 2011.

Nevertheless, the long-term chart of the XAU suggests that metals and mining stocks are now at bargain prices with basing technical patterns starting to develop on shorter dated time frames. If so, much more upside appears likely for the XAU in the months ahead.


Is The Philadelphia Gold & Silver Index A Diamond In The Rough?

Posted in Philadelphia Gold/Silver Sector Index (XAU) on December 12th, 2013 by admin – Be the first to comment

By Jim Donnelly. Olson Global Markets

When looking at the monthly bar chart of the Philadelphia Gold & Silver Index (XAU) on a linear format, it is evident that after a nearly 3-year long free fall, it is quickly approaching a test of long-term trend line support at the 77 level. With deeply oversold conditions present on long-term charts as well, the 77 level looks like an attractive point-of-interest to potential buyers of stocks within this sector. Moreover, a new round of bearish forecasts made by a number of key commodity analysts might ironically serve as some sort of extreme when considering investment sentiment a few months from now.

There is no doubt that the economy continues to post better-than-expected job gains, stronger-than-expected auto sales, an acceleration in growth as measured by November PMI report and modest wage increases. Nevertheless, these numbers have teamed up to sent yields on 10-year Treasury notes higher, which could crimp housing activity and related product sales in future months.

Still, there is an expectation that current economic conditions will entice investors away from precious metals and into growth stocks. The only problem with this viewpoint is that the Philadelphia Gold & Silver Index has already fallen by 65.3% to the 80.65 level from its peak of 232.72 in December 2010 suggesting that the economic turn-around may have already been discounted and priced into the market.

Others suggest that the severe 3-year plunge in the XAU is a reflection of disinflation and the threat of future deflation, which the Fed appears to have been waging a massive multi-year monetary war against since 2008/2009.

In any event, a number of the components of this index are concurrently nearing their respective long-term trend line supports including: Silver Wheaton Corp.(SLE); Pan American Silver Corp. (PAAS): Newmont Mining Corp. (NEM); Gold Fields Ltd. (GFI); and Eldorado Gold Corp. (EGO), while others, like Barrick Gold Corp. (ABX) appear to be forming bullish reverse Head & Shoulders patterns (albeit with sagging right shoulders). As a result, most of the price damage may have already occurred making current levels in these stocks look extraordinarily attractive.