Did Gold Peak on Octobler 18th?

The 'Helicopter Economics Investing Guide' is meant to help educate people on how to make profitable investing choices in the current economic environment. We have coined this term to describe the current monetary and fiscal policies of the U.S. government, which involve unprecedented money printing. This is the official blog of the New York Investing meetup.


Gold as measured by the ETF GLD fell 3.2% in New York trading on Tuesday. Its chart looks very similar to December 2009 when it experienced an intermediate peak.

Early last December, gold had been rallying for three months. Sentiment was extremely bullish. GLD (and SGOL and IAU, the other ETFs which hold physical gold) was well above its simple 50-day moving average. The technical indicator RSI had become extremely overbought on the daily charts in late November, rising above 80. After a slight dip below 80, the RSI then rose to a merely overbought 80 as the price of gold hit a higher high. This negative divergence signaled the gold rally was done for the next few months. Gold then gapped down and had a sharp drop with the RSI quickly fallingl toward a neutral 50. 

More recently, gold has been rallying since late July. Sentiment has been extremely bullish for quite awhile. Gold has been trading well above its simple 50-day moving average. Gold became overbought by the last week of September and entered extremely overbought territory on the daily charts at the end of the month with the RSI rising above 80. By early October, the RSI was even higher. Then there was a quick dip below 80 and the RSI rose and hit 80 while the price of gold hitting new highs. The negative divergence once again signaled trouble. On Tuesday, gold gapped down and had a sharp drop. The RSI had even a bigger drop falling toward 50. The pattern is almost identical to December's, although gold was a bit more overbought and overbought for a longer period this time around. 

If gold follows last December's pattern, it will fall toward its simple 200-day moving average. For longer term holders, this is not a significant move. Shorter term position traders should be more concerned. Regardless of your investing time frame, this doesn't look like a good time to add to positions. In long-term bull markets, and gold has been in a long-term bull market since 2001, investors should add to positions when the price of an asset is around its 200-day moving average.  

Disclosure: No positions.

Daryl Montgomery
Organizer, New York Investing meetup
http://investing.meetup.com/21

There is no intention in this article to endorse the purchase or sale of any security.

Gold Rally Fails: Will a Big Drop be Next?

The 'Helicopter Economics Investing Guide' is meant to help educate people on how to make profitable investing choices in the current economic environment. We have coined this term to describe the current monetary and fiscal policies of the U.S. government, which involve unprecedented money printing. This is the official blog of the New York Investing meetup.


On May 11th, gold closed at a new all-time high above $1200. I was at the Hard Assets Conference in New York that day and I was probably the only person in attendance that was not enthusiastic about the yellow metals short-term investment potential.  Now, only nine days later, it looks like the breakout has failed.

GLD, the largest Gold ETF, had reached a high around $120 in early December of last year. So far in this recent breakout it traded up to only $122.23. GLD closed at $116.63 yesterday, convincingly dropping below the high from late last year.  GLD is now likely to test its 50-day moving average, which is currently a little below $113 and rising. So far, there is no serious damage on the technical indicators, but this could take place in short order as occurred with stocks before the crash on May 6th.

When trying to determine what gold is going to do, it is a good idea to look at mining stocks. These almost always lead the metal both on the way up and the way down. Interestingly, GDX, the gold and silver ETF for the major mining companies, failed to make a new high and break out in the days around May 11th. This non-confirmation was disturbing at the time and is even more disturbing now. GDX almost touched its 50-day moving average in the almost $30 drop in gold prices yesterday. The more volatile GDXJ, the junior miners ETF, convincingly sliced through its 50-day and closed well below it. The technical indicators on GDXJ are starting to look quite sickly. The juniors are clearly breaking down and it makes sense that they should lead the way for the complex. If so, bullion itself could be in a lot of trouble soon.

Investors should remember that gold sold off substantially in the fall of 2008, although not nearly as much as most stocks or other metals. Junior mining stocks were as devastated as the financials and had some of the biggest drops of all. If we are entering into another global financial crisis, gold may once again fail to live up to its safe haven reputation. This situation can arise once again because the central banks cheaply lease their gold to the big banks and hedge funds. When the trading houses are desperate for cash because they are having difficulty selling their assets, they can lease gold and sell in on the open market immediately. This sudden supply being dumped on the market overwhelms safe haven buying and suppresses gold prices. If we have begun global Credit Crisis #2 because of the problems with the euro, investors will once again have access to bargain priced gold.  It's at that point that investors should stock up.

Disclosure: No positions.

Daryl Montgomery
Organizer, New York Investing meetup
http://investing.meetup.com/21

This posting is editorial opinion. Like all other postings for this blog, there is no intention to endorse the purchase or sale of any security.