The following is an excerpt from the December 13th, 2013 blog for Decision Point subscribers.
The Gold and Silver Index (XAU) represents a group of precious metal mining stocks. It is in a major decline from the 2010 top.
We have watched the XAU form a massive head and shoulders pattern for over three years. The neckline was violated this year, and the technical downside target was somewhat below the horizontal support line drawn from the 2008 low, so it would seem that there is more downside to go before the target is reached.
But not so fast. Zooming back on the monthly chart we can see that price is approaching a long-term rising trend line that is currently slightly above 75 and just below the price index. It is possible that a bottom may be close at hand. That would be good news for those who have watched it lose about 85% of its gains since the low in 2000.
Sometimes people wonder if the XAU is a good surrogate for gold. As you can see comparing the chart below with the one above, it would be hard to make a case for that.
Conclusion: The XAU has been in a severe bear market since the 2010 top, but a long-term rising trend line presents a credible area of support at around 75. That would be a good place for a bottom to form. We'll be watching.
Technical analysis is a windsock, not a crystal ball.
