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  • Gold Stock Indicator Review 0 comments
    Jun 7, 2014 10:36 PM | about stocks: GLD, GDX, SLV

    On June 7, 2013 (found here), we said the following of gold (NYSEARCA:GLD) and gold stocks (NYSEARCA:GDX):

    "…the pattern has typically been that when the stock market swoons, so does gold stocks and to a greater degree. If the Dow Jones Industrial Average cannot maintain the current level gold stocks will decline massively."

    For a brief moment, from June 7, 2013 to June 24, 2013, the Dow Jones Industrial Average declined approximately -3.5%. In the same period of time, the price of gold declined -13% while the XAU gold stock index declined -22%.

    (click to enlarge)

    On the whole, precious metals investors need to etch the following comments from Charles H. Dow into their mind:

    "For the past 25 years the commodity market and the stock market have moved almost exactly together. The index number representing many commodities rose from 88 in 1878 to 120 in 1881. It dropped back to 90 in 1885, rose to 95 in 1891, dropped back to 73 in 1896, and recovered to 90 in 1900. Furthermore, index numbers kept in Europe and applied to quite different commodities had almost exactly the same movement in the same time. It is not necessary to say to anyone familiar with the course of the stock market that this has been exactly the course of stocks in the same period ( source: Dow, Charles. Review and Outlook. Wall Street Journal.February 21, 1901.)"

    When Charles Dow speaks of commodities, gold and silver (NYSEARCA:SLV) should be included in the category. Accepting this reasoning will provide precious metal investors with the necessary risk planning thought process, hopefully before investing in the sector. Even if the decline in the Dow Industrials does not lead to the decline in gold stocks in every instance, it is better to be prepared for an outcome that occurs a majority of the time.

    At the time, our Gold Stock Indicator had the following trend:

    (click to enlarge)

    Our GSI was at the "stage 3 buy" level and it looked like the upside resistance was to the "stage 2 buy" level. However, we did hold out the possibility that the "stage 4 buy" signal was still on the horizon. The "stage 4 buy" level was indicated on June 26, 2013 in our posting titled "Gold Stock Indicator: Now Is the Time" (found here).

    Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

    Additional disclosure: long physical gold and silver

    Stocks: GLD, GDX, SLV
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