Category Archives: XAU

Gold Stocks: Hedge Free

We have been quoted here on many occasions saying that when the general equity market takes a dive of –10% or more, so too does gold stocks by a greater margin.  Our point, gold stocks are not a hedge from general market drops.

In our September 24, 2014 article titled “Gold Stocks: Risks and Remedies” we highlighted the numerous instances from 1939 to 2011 of when the Dow declined by more than -10% and showed how either the Barron’s Gold Mining Index or the Philadelphia Gold & Silver Stock Index declined by a greater percentage.

In the recent decline of the DJIA from January 26, 2018 to February 8, 2018, the index declined –10.36%.  So how much did the Philadelphia Gold & Silver Stock Index (XAU) decline?  The XAU declined –11.57%.

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In the chart above, we have excluded the decline of –14.75% from January 24, 2018 to February 9, 2018 in the XAU index.  Add this to the growing list of instances of when the DJIA declines more than –10% and gold stocks also decline by a greater percentage.

The Power and Lessons of Speed Resistance Lines

We are not big fans of charting as a means to make decisions about where the price of a stock or index will go. However, when a charting strategy has a high level of consistency while taking away our own person bias, we have to dig a little deeper.  This is a general overview of the incredible forecasting power and the practical investment lessons that we’ve experienced while employing Speed Resistance Lines.

Speed Resistance Lines, as demonstrated by the writing of Edson Gould, have been of significant aid in tempering our enthusiasm for a stock or index, especially when applied to targeting downside levels.  Within the context of the current bull market since 2009, we’ve seen a large majority of the stocks achieve the conservative downside target (more SRLs we’ve run here).  This means that even when we thought we selected the right stocks to apply to the SRL, we have been wrong.

Below are the earliest three examples of Speed Resistance Lines (SRL) that we introduced with the focus on downside targets.  The first SRL we will review is the Dow Jones Industrial Average from 1949 to 1975. The second SRL is for the Philadelphia Gold and Silver Stock Index (XAU) from 1998 to 2016.  The last one is Netflix (NFLX) from 2007 to 2013.

sources:

  • Scheinman, William X. “1966 and All That: One Stock Market Analyst Sees Some Ominous Parallels Today”. Barron's. March 17, 1969. pg. 5.
  • Scheinman, William X. “600 on the Dow?” Barron's. February 9, 1970. pg. 5.
  • Scheinman, William X. “May to December: The Bear Market, Says One Analyst, Will Hit Bottom This Winter”. Barron's. August 24, 1970. pg. 5.

Gold Stock Indicator: November 4, 2014

Since our October 17, 2014 posting, the price of the SPDR Gold Shares (GLD) has declined –5.69% while the Philadelphia Gold and Silver Stock Index (XAU) has declined –16.52%.

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Gold Stock Indicator: September 19, 2014

Gold as represented by the SPDR Gold shares (GLD) and gold stocks as represented by the Philadelphia Gold and Silver Stock Index (XAU) have declined –1.48% and –5.42%, respectively.

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Gold and gold stocks are getting decimated in the latest decline.  Our Gold Stock Indicator (GSI) is getting very interesting.  Below are the GSI for the Philadelphia Gold and Silver Index  (XAU) compared to the Barron’s Gold Mining Index (BGMI).

Gold Stock Indicator: August 8, 2014

Gold and precious metal stocks continue their long road to nowhere with a minor increase of +1.32% in the SPDR Gold Share (GLD) during the last week.

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