Tuesday, January 31, 2006

Gold stocks unstoppable

When will this end? Gold was up again today, closing at $570, and gold stocks advanced another 2% on the TSX. The heaviest trading was in Bema (BGO), Kinross (K), and Eldorado (ELD). The S&P /TSX Gold Index has been a Stock Trends bullish sector for 22 weeks, but really began its bull rally in mid-May of last year. Certainly, gold prices of plus-$500 were ambitious targets at that time. As to the near future: bet on further advances as gold - and gold stocks - catch up to the strong move in oil prices in the last couple of years. The ratio of oil to gold is a commonly watched relationship, and this pendulum has begun to swing back toward gold. The graph shows the relationship between energy stock prices (S&P/TSX Energy Index) and gold stock prices (S&P/TSX Gold Index). In the past two years the trend has been toward the energy sector. However, the relative strength of the gold sector is starting to show. The Energy/Gold ratio is dropping, reflecting greater price appreciation in gold stocks relative to energy stocks. Gold is again winning back favour as a commodity currency. The current Stock Trends RSI for Gold stocks is 118, compared to Energy stocks at 108 (see http://www.stocktrends.ca/stonline/indexes/?indexgrp=C&weekdate=2006-01-26&order=rsi). The market is looking for more.
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