August is usually a slow time on Wall Street. Many market participants are away from their trading desks and volumes are typically low. In such an environment it is difficult to trust market moves. However, one market that has made a convincing move in recent days is the precious metal complex. Gold, Silver, Platinum and Palladium have all broken out within days of one another. Platinum and Palladium were the first to break out followed by Silver and then Gold. What makes this move even more credible is that Silver has been outperforming Gold in recent days as seen from the rising line in the chart below
And junior Gold stocks which represent the most speculative segment of this market have also been outperforming their more established and profitable counterparts as seen in the chart below.
All these data points, usually leading indicators of Gold, might be signaling the beginning of an uptrend in Gold in the coming weeks.
Besides this, the Gold market is also entering a seasonally strong time of the year that starts around late August with the end of harvesting season in the Indian sub-continent, continues into the wedding season and ends with the Chinese New Year sometime around late January to early February.
Nihar Dalal, CFA
August 26, 2012
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