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S&P/TSE Canada Gold Index

11/08/02 11:48:18 AM
by Koos van der Merwe

With the anticipated rise in the gold price and gold shares should there be a war in Iraq, many gold shares are beginning to look promising. One of the 'shares' that has already given a buy signal is the XGD or S&P/TSE Canada Gold Index that is traded on the Toronto Stock Exchange.

Security:   XGD.T
Position:   Buy

The chart below is of the S&P/TSE Canada Gold Index, more commonly known as the Gold I-Unit Index. I have included the Red/Green strategy to determine performance. (See my article, "Red/Green Strategy" posted on September 30, 2002.)

I-Units, the Canadian equivalent of exchange traded funds (ETFs), are traded on the Toronto Stock exchange. I use them as a good indicator of sector direction because they incorporate sophisticated investor sentiment due to their high price, presently at $44.75. This high price discourages penny pinchers or speculators from distorting performance.

S&P TSE Canada Gold Index
Graphic provided by: AdvancedGET.
The chart shows that a buy signal was given on the October 28, 2002, when the I-Unit crossed above the green line (the high of ten days ago). This has been confirmed by the RSI indicator which is bullish and rising.

To determine an estimated target value, I have drawn a consolidation triangle, and labeled it accordingly (see "Anyone for Gold?", October 29, 2002 ). Do note that the triangle strategy I used is the original classic strategy, not the strategy found in Elliott wave analysis.

Using this strategy, I find that should the I-Unit break out of the triangle at 'e' which is a possibility considering the recent strength in gold, the price could rise to 65.66 before falling back. The estimated date of the triangle apex is January 21, 2003.

Koos van der Merwe

Has been a technical analyst since 1969, and has worked as a futures and options trader with First Financial Futures in Johannesburg, South Africa.

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