Gold Index Rally Signals More Gains to Come: Technical Analysis

(Bloomberg) -- The Philadelphia Stock Exchange Gold and Silver Index is signaling that some bullion producers will extend gains after all 16 companies in the index rose yesterday, according to WJB Capital Group Inc. The cumulative advance-decline line for companies in the index set a record as the benchmark of precious metal miners’ shares climbed 8.6 percent to the highest since June 4 yesterday, John Roque, managing director in technical analysis at WJB in New York, said in a report. The line represents the number of daily gains for stocks in the index minus the number of declines since the beginning of 2001.“The new high in breadth is a positive divergence and implies that many of the stocks in the index should follow,” Roque wrote. Roque was one of two runners-up in the technical analysis category in Institutional Investor magazine’s 2008 ranking of the top three analysts in each field. Technical analysts make predictions based on price and volume charts.

A positive divergence occurs when the cumulative advance- decline line makes a new high before the index itself reaches one, the report said. The Philadelphia mining index rose 5.1 percent to 164.89 as of 1:17 p.m. in New York, the highest since Aug. 1, 2008.The biggest increase since March in the price of gold futures spurred yesterday’s advance by the mining index. Gold for December delivery climbed 2.2 percent to $978.50 an ounce on the New York Mercantile Exchange as slumping global equity markets and a drop in the value of the dollar boosted demand for precious metals.

Barrick, Agnico, Kinross
Stocks in the index that may rise the most include Barrick Gold Corp., Agnico-Eagle Mines Ltd., Kinross Gold Corp. and Rubicon Minerals Corp., the report said.Gold itself, which is 0.7 percent below its record price of $1,004.30 in March 2008, compares favorably with the Standard & Poor’s 500 Index by historical standards, Roque said. Since 1928, the price of gold has averaged 1.5 times the level of the main benchmark for American equities, and the ratio has peaked at levels 2.7 times to 6 times the level of the index, he said.The price of gold currently is about even with the level of the S&P 500, down from 1.4 times in March, when the stock index fell to a 12-year low.