Yesterday one of my readers spotted that now the broad precious metals market is weaker than gold. The chart below shows this situation:
Well, the question is: "Is the upper panel of the chart showing an upward or a downward trend?".
Let me answer that question as follows:
The facts are that:
- surely, the trend line has been broken
- surely, since middle August precious metals stocks have been weaker than gold
"A formal downtrend occurs when each successive peak and trough is lower than the ones found earlier in the trend"
I am sure that what we see now is not a downward trend as defined above.
However, who knows, financial markets are unpredictable and the current upward trend may develop into a downward one. That is why it is so hard to make money in financial markets. However, now it is too early to pronounce the end of the current trend.
I hope this explanation helps...
A final note - the long-term view on XAU / Gold relationship (once again):
In late June 2011 investors had got an important signal - XAU / Gold relationship entered its downward trend. The chart above shows lower highs and lower lows established by a multiple XAU / Gold. The blue, vertical line shows the point in time when the signal was clear. Note that PM stocks investors still had time to sell their stocks (XAU was trading in a range until early 2012 - the area marked in yellow).
Now we are still at the beginning of the entire cycle but it cannot be ruled out that PM stocks had just entered a period of comparable-to-gold performance.
Unfortunately, the most important rerlationship between gold stocks and gold itsel is this:
"In the long-term gold is the winner".
Here is the saddest (for gold bulls) chart: