$$Golden Indicators

Today I came into the day wanting to short $GG and $IAG, two gold mining stocks. The dollar rallied against the euro overnight and the gold spot chart was also moving lower with gold trading just under 1110. I didn’t end up getting short because from the open the euro rallied against the dollar and gold bounced from its lows to make new highs.

Notice the above correlation between the spot gold chart and the EUR/USD. Both hit lows around 9:00 am and then trended up for the rest of the day along with most of the day.

When trading gold mining stocks there are a few key indicators that are useful in predicting which direction it will move. The first, which we also use to watch the market, is the EUR/USD. When the Euro get’s stronger, which means the chart is trending up, then gold rises on the weakness of the dollar. When the dollar rallies against the Euro, which means the chart is trending downwards, then the gold mining stocks will usually sell off.

The other indicator is the spot gold chart, which can be found at kitco.com. This will show you more than anything if gold is trending or not trending. What you want to see is it going 1 direction and trade gold that direction. If you see it going sideways and not making new highs and lows then more than likely the gold mining stocks will be doing the same and be very choppy.

The other thing to watch is $GLD, the gold index, and other mining stocks in the sector such as $ABX, $IAG, $GG & $GDX. When gold is trending, then these will all be moving the same way. Although I have found that the correlations between them can sometimes be direct and other times divergent, so you always have to trade the stock you are in first.

note: To get to the live spot gold charts go to http://www.kitco.com/charts/livegoldw.html

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