Thursday, March 22, 2007

Gold/XAU Ratio

When the Gold/XAU ratio moves toward 5.0, it’s an excellent time to buy large-cap gold miners. If the ratio gets anywhere near the 3.0 level, it's time to cash out. During the next correction, when the ratio spikes above 5.0 again, get ready to buy back those shares at a lower level.

Caution: When the 50-day moving average of the Gold/XAU ratio cross over the 200-day moving average, the crossing of these moving averages has meant that the ratio has further room to the upside and stocks have further room to run to the downside (relative to gold).

Since 1974, the Gold/XAU ratio has been above 5.0 about 15% of the time. At these levels, the XAU has followed with average annualized gains of 89.6%. When the ratio has been above 4.0, the XAU has obtain average annualized gains of 27.4%. But, when the ratio is below 3.0, the XAU has declined at an annualized rate of -36.6%.


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