Momentum Polishes Gold; Mind the Dollar

Mo-Mo Gold

Getting back to gold, the Comex gold, currently around $514.20, tested a new 52-week high at $514.80 on Friday; my model shows no nearby resistances. As long as weakness for gold stays above my semiannual and quarterly pivots at $486.50/$482.70, gold should continue to trade higher on strong technical momentum. Gold is even entering a speculation phase, as my model shows the precious-metals industry 31.8% overvalued. Just as telling: My model does not show a single gold-mining stock that meets my criteria for being a buy, chief among which is being 40% undervalued.

If you are trading momentum, consider Harmony Gold(HMY Quote), but keep in mind that shares are 5.6% overvalued with fair value at $11.52. The weekly chart profile reflects the positive momentum, with an overbought 12x3 weekly slow stochastic and the five-week modified moving average at $11.39. Here's the trade I see in Harmony: As long as weekly closes are above the five-week MMA, I show potential strength to my semiannual risky level at $17.32. I would consider a sell-stop below my monthly pivot at $10.82.

Slick Progress in Oil

Crude oil is trading around $59.32, and tested a new 52-week low at $55.72 last Wednesday, but like the CRB, it ended the week back above its 200-day SMA at $58.06. Crude oil was below its 200-day SMA between Dec. 3, 2004, and Jan. 6 this year, and again from May 12-23; each instance provided a buying opportunity. It looks like last week's dip will prove the same. My model suggested that crude oil would rebound to my quarterly pivot at $59.99; now it may head as high as my new monthly resistance at $62.04. This week's support is $57.53.

One of my themes for crude-oil prices is that the price per barrel became $20 higher than it should have been, due to speculation caused by the FOMC's pushing the fed funds rate down to 1% in June 2003. In congressional testimony in early November, Exxon Mobil(XOM Quote) Chairman Lee Raymond commented that speculation resulted in crude oil trading $20 above where supply and demand forces would have been. My semiannual support at $48.03 is well above $43.45, where crude ended 2004, and this differential has a longer-term inflationary effect.