Online Trading Education

Putting Gold in Perspective

To put it plainly, gold is in a down trend. Since the election, gold has decoupled itself from the equity markets and started moving its own way. Technically gold is weak, and could get weaker. Fundamentally, gold is strong, and could get stronger. This is a diverging problem that only time will tell which way gold will go.

Fundamentally, gold is one of the hottest commodities going. Russia (Putin) just shifted from acquiring “black gold” (oil) to yellow gold. China, which is the world’s second largest gold producer, is the world’s largest gold buyer. And just last month the World Gold Council suggested that China is looking to back its Yuan with gold. Finally, Mexico, Brazil, and Korea are buying large quantities of gold. This is all very large demand and a precious metal that has limited quantities. So based off supply and demand, gold should be heading higher.

Technically, gold is weak. Below are three chart to help put things in perspective. Chart 1 is a monthly chart of gold with a 23 month moving average. Gold is breaking below this MA. The only other time gold broke below this average was back in 2009 as the equity markets bottomed out, from the housing and bank disaster, and turned around. Chart 2 is a weekly chart with a 3, 21, and 65 week SMA. Gold is clearly below all 3 averages. Notice the support line at 1526. This is the last big support that gold has, and if broken, gold will turn bearish for the first time in 12 years. Finally, Chart 3 is a daily chart with a 3, 21, and 65 day SMA. Again, gold is trading below all three averages. Every chart is below every average. Like I said, gold is weak.

If you have positions in gold, it might be a good time to lighten up a bit. Keep the physical gold and silver, but if you have ETF’s and other gold and silver stocks, a clear break below 1526 would be a sign to exit and look for buying opportunities at some other time. Good luck trading!
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