200 DMA to be a critical level indicative of the bullish or bearish trend in the price of gold

The gold price hovered near $1,675 per ounce Wednesday morning after the latest report on the U.S. labor market largely met expectations.  The price of gold showed a muted reaction to the February ADP Employment report, which at 216,000 was fractionally above the 215,000 consensus estimate among economists.  Silver stabilized alongside the gold price after the jobs data was released, near $32.95 per ounce.

Jonathan Jossen, a gold options trader at the COMEX, stated in comments to Reuters that “People who are long gold are getting out. They don’t like what’s going on with Greece and the stock market is decisively lower. It’s a matter of raising money.”

Analysts at Commerzbank wrote in a note to clients that “There is still a correlation between gold and risky assets such as equities and industrial commodities.  This is probably due to investors with a short-term horizon selling long positions on the futures market.” At its current level, the gold price is now sitting right on its 200-day moving average (DMA) of $1,673.98 per ounce.   Many traders consider the 200 DMA to be a critical level indicative of the bullish or bearish trend in the price of gold.  Yesterday, several traders contended that if the gold price falls decisively below its 200 DMA, further selling could materialize.
While such a technical perspective may be widely followed, history suggests that it does not work well as a timing indicator by which to invest.  During the ongoing 11-year gold bull market, the gold price has dropped under its 200 DMA on numerous occasions– including in 2003, 2004, 2005, 2006, 2008, 2009, 2011, and earlier this year.

Although calls arose each time for the end of the bull market, every instance marked an important bottom in the price of gold.  Moreover, during the corrections the gold price declined on average only 3.7% below its 200 DMA.  While the latest challenging period for the gold price could persist, the evidence therefore indicates that the weakness is meant to be bought rather than sold.

Comments

Post a Comment

Popular posts from this blog

Gold edges up on weaker dollar, dovish U.S. Fed policy bets

Image
 Gold edged higher on Monday, helped by a weaker dollar and expectations that the U.S. Federal Reserve will reiterate its dovish monetary policy stance this week. Spot gold was up by 0.1% at $1,943.58 per ounce. U.S. gold futures rose 0.1% to $1,950.10 per ounce. “Gold is firm on the basis that the Fed could adopt a further dovish message with respect to average inflation targeting,” said Michael Hewson, chief market analyst at CMC Markets UK. “If you want to have a policy of average inflation targeting, you’re going to have to go into detail as to how you are going to arrive at that particular outcome.” The dollar retreated on Mond ay, bolstering gold’s appeal for investors holding other currencies, ahead of the Fed’s policy decision due on Wednesday. “If inflation forecasts remain at 2% or below, this could offer gold a tailwind as the zero-yielding metal thrives in a low-interest rate environment,” said FXTM analyst Lukman Otunuga. Market participants are also waiting
Read more

For the gold price, two outcomes are possible.

Image
For the gold price, two outcomes are possible. First is a return to or near the April low ($1,277.40). Second is a drop to a lower low, $1,240 - $1,260. Yet a third possible outcome is that the June and December lows were not a double bottom and one further drop may come. I account that the least likely, and look for a low here by the end of the week, but I'm no more'n a nacheral born durnd fool from Tennessee, so what do I know?   You'd think that an institution charged with promoting the gold industry would produce reports that at least cast the best light on gold's prospects. You'd think wrong, if you're thinking about the World Gold Council. They've been negative on gold for, oh, the last 14 years or so. Today they issued a report that contained a nugget about Chinese business using physical gold as collateral for bank credit ($40 bn worth) but they managed to tease a gloomy forecast even out of this inventive monetary use. That and bad
Read more

The price of gold advanced as high as $1,603.40 per ounc

Image
The gold price broke out to a new all-time high above $1,600 per ounce Monday morning, rising for the eleventh consecutive trading session. The price of gold advanced as high as $1,603.40 per ounce before backing off to trade just the $1,600 level. The yellow metal gained on the back of a surge in borrowing costs for Italy, the latest European nation to see its bond market come under heavy selling pressure. The lack of a deal to raise the $14.3 trillion debt ceiling also helped boost gold prices. The eleven-day rise in the gold price is the longest winning streak since January of 1980. The gold price delivered another noteworthy performance last week, climbing 3.2% on its way to a series of fresh record highs. With Monday’s advance, the gold price extended its monthly and year-to-date gains to 6.6% and 12.5%, respectively. Last week’s two-day Congressional testimony by Chairman Ben Bernanke on the economy and monetary policy revealed that the Fed remains open to the
Read more