The top chart is a relative strength chart of Gold:XAO. (This is Gold in Ozzie Dollars – investable through the ETF Gold on the Australian Stock Exchange.) This week the ratio chart moved continues to hold above the 55-Day Moving Average. And the 55-Day MA has now turned upwards – a bullish sign. One only has to look at this chart to see the potential for further movement. Will it happen? I have no idea. I’m not in the prediction business – I just follow the trend. So long as the chart line remains above the 55-Day MA, the Gold.ETF is in a bull market.
GOLD in Australian Dollars appears to be a good hedge against the Australian stock market. It has a negative correlation to the XAO over a two year period of -0.9%. That is close to perfect over the medium term. It is as much a play in the Ozzie Dollar as it is in Gold itself. The Gold ETF can rise in Ozzie Dollars even while Gold, which is usually quoted in US$, may be reported as falling in the daily news media. Do not confuse Gold ETF with Gold reported in the news media. A fall in the Ozzie Dollar is negative for our stock market, but a strong positive influence on Gold in Ozzie Dollars
The best time to invest in Gold (through the ETF GOLD) appears to be when the ratio GOLD:XAO crosses above its 55-Day SMA (in orange on the chart). You can see throughout the bear market, the Ratio Chart line was above the orange SMA line. In late March, when the XAO turned bullish, the Ratio Chart Line fell below the orange SMA line.
The middle chart is the chart of GOLD (Gold ETF). It has been consolidating at the highs after a parabolic rise the previous week.
Gold was “overbought” with an RSI 86.9. This has now dropped back to 70.05 – still high, but the extreme overbought condition has been relieved.
The bottom chart shows that gold has now formed a small pennant. These normally break in the direction of the trend but can go with way. A break below the supporting line of the pennant would be an exit sign for short term investors. A break above resistance would be an “add” signal. Long term investors hedging against a drop in the broad Australian stock market might wait until the ratio chart breaks back below the 55-Day MA or, alternatively, wait for a break below the 150-Day Moving Average on the Gold-ETF chart.
The Gold ETF provides a simple and clear hedge against a fall in the general market.
Remember – Gold in US Dollars can fall but rise in Ozzie Dollars, and vice versa. Investing in Gold.ETF is as much a play on currency rates as it is on Gold itself.
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