Is It Time to Buy?

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...Yesterday the XAU closed at 94 while gold closed at $760 an ounce. This makes the XAU/Gold 0.124. Thatís less than half the ratioís long-run average and just off the 25-year lows. Itís either a very bullish sign for gold stocks or a very bearish signal for gold...

...Although weíve taken the past few days to look at gold and when (and if) a bull market will resume, and a few different ways to get in on what could be a big bull run for gold, thereís one thing that really has caught my attention recently.

The XAU/Gold ratio is a measure of index of leading gold mining companies (XAU Ė Philly Gold and Silver Sector Index) relative to gold price. Over the past 25 years, the XAU/Gold ratio has been 0.25. That means the XAU index would be about ľ the price of an ounce of gold.

On Monday, the XAU closed at 94 while gold closed at $760 an ounce. This makes the XAU/Gold 0.124. Thatís less than half the ratioís long-run average and just off the 25-year lows.

Itís either a very bullish sign for gold stocks or a very bearish signal for gold. Something has to give and Iím currently working out a short gold/long gold stocks trade to capitalize on it.

All signs point to a bottom, at least in the near term; however, in a market like this, it all could change in a matter of minutes. A single warning of more trouble ahead for China, another surge in unemployment, or more disastrous retail spending in the U.S., could easily put the brakes on any rally...

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