Philadelphia Gold & Silver Index Approaching Key Support
Posted in Philadelphia Gold/Silver Sector Index (XAU) on July 27th, 2012 by admin – Be the first to commentBy Jim Donnelly, Olson Global Markets
On monthly charts, the Philadelphia Gold & Silver Index appears to be cascading toward a test of key trend line support at the 138 level after reaching a peak of 232.72 in December 2010. The Philadelphia Gold & Silver Index is a composite of sixteen (16) precious metals mining companies represented by the symbol “XAUâ€. And while the price of gold is off its peak price by 20.0%, the price of silver is down by a much larger 47.2% with the overall XAU index off by 39.4% from its all-time high.
From a technical point-of-view however, it is interesting to note that the last three times monthly RSI (the Relative Strength Index) reaching current levels, a solid reversal to the upside followed within a two month period. Of perhaps more interest is the observation that the last time monthly stochastic studies were this low, a multi-year outsized move to the upside also unfolded.
While it is clear, that the XAU is far from a testing key long-term trend line support drawn off the lows of the years 2000, 2008 and 2009, it does appear to be entering into a “buy zone†near the 138 level based on monthly RSI and stochastic studies. Rising fears of the value of “fiat currenciesâ€, such as Yen, the Eurodollar and possibly the dollar itself, are often cited as the reason why silver and in particular gold are viewed as alternative global currencies.
Increasing restrictions of gold buying in some European countries last year, as well rumors this year that the Indian government may begin to limit the importation of gold due the affect it is having on its balance of trade may have contributed to the already-in-progress decline in precious metals mining stocks. Nevertheless, the extended downturn may be providing an interesting buying opportunity.
Key names to keep an eye on are: Agnico Eagle Mines, Ltd.; (AEM), Freeport McMoran Copper & Gold, Inc. (FCX); Goldcorp, Inc. (GG); Newmont Mining Corp (NEM); and Silver Standard Resources. Inc. (SSRI). Each is trading with either a similar pattern to the XAU, or hitting its long-term trend line support.
One caveat to this “buy on weakness†point-of-view is however, that if the 138 area fails to hold as support, a solid “leg†lower could unfold and along with it bring out the drumbeat of the “D†word (deflation). For now however, RSI and stochastic studies suggest a buying opportunity on precious metals mining stocks may soon be coming.