Using the Gold/XAU Ratio to Assess the Gold Market

08/26/2008 12:00 am EST

Focus: COMMODITIES

John Netto

Author, The Global Macro Edge

One of the components most precious metals traders use to determine the overall state of the market is the relationship derived from the gold price divided by the price of the XAU index. The XAU is the Philadelphia Exchange gold and silver sector and is a measure that dates back to 1984. The recent sell-down in gold has seen an even sharper pullback in the price of gold stocks, as the combination of gold's underperformance to other commodities like oil, as well as falling gold prices, finds many mining stocks hitting hard times. However, the ratio, which hit a historical level in December of 2000, has once again sent a buying opportunity that has historically sent a very powerful rally in the mining stocks.

By John Netto of OSOKTrading.com

Related Articles on COMMODITIES