On April 14, 2011, in our very first attempt at understanding Edson Gould’s Speed Resistance Lines, when the Philadelphia Gold and Silver Stock Index (XAU) was within 6 trading days of the top, we said the following:
“Based on the most recent high of 228.95 the downside target for the XAU index is 76.32. We recommend that whenever the XAU index falls at or below the speed resistance line drawn on the chart, between now and just before 2028, as part of the secular rising trend in interest rates/inflation, we would expect that the stocks in the index are underpriced. Confirmation of fair values should be determined for possible speculative positions at these times.”
The chart below reflects the April 14, 2011 level and the projected downside target and is contrasted with the actual low attained, so far.
The most obvious failure is the fact that the XAU Index declined to 38.84 instead of the 76.32 level, by early 2016. Additionally, we did not arrive at a timeframe that was useful to traders or investors in gold and silver stocks.
Below, we’re going to use the same methodology of projecting price targets for both the price of gold and the XAU Index. However, in this review, we’ll be focused on what the upside targets are from the current levels.
Let it be known that the downside target for gold is $1,049.40 and for the XAU Index is 38.84, until proven otherwise. We believe a reasonable market participant should be willing to accept that both levels will retest the prior low before moving higher.
Gold Upside Targets
Based on the price of gold, we have the following upside targets:
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$1,472.00
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$1,615.82
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$1,755.41
XAU Upside Targets
Based on the closing price of the Philadelphia Gold and Silver Stock Index (XAU), we have the following upside targets:
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133.80
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166.09
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197.42
Gold Stock Indicator
The Gold Stock Indicator (GSI) still says that gold stocks are undervalued and should be bought. Buying at these levels isn’t easy. On our end, we’ve sold gold stocks (at a gain) to buy the stock ETF Global X Silver Miners (SIL), which has promptly declined in valued. We’re banking on the upside volatility that will arise when/if the price of gold increases.