Friday, July 19, 2013

Gold at (another) key price point

On April 17th, I wrote about how gold was broken, and on June 20th I wrote about how gold was broken, again. On June 20th, gold plunged from 1350 to near 1280. It continued to erode to about a 1200 low and has since climbed back to the 1280-1300 range. 

What now?


The daily chart above shows gold's descent since late last year. A downward trendline had been in place heading into April and with gold's abrupt breakdown in that month, a steeper descending trendline has since been established. This recent rally back towards 1300 is about to meet that trendline, serving as resistance. 

The daily chart of gold below includes the 50-day exponential moving average (EMA) along with the RSI:


During bear markets or protracted price declines, it's common for momentum to remain subdued and range-bound. This can be observed above in the RSI, as the indicator has oscillated within its lower bound (0-50). The upper range of 50 serves as resistance (represented in the chart with a green line), keeping any rallies feeble and confined. The trend will remain down until this 50 level for RSI is breached meaningfully to the upside, getting to the 70+ level, inferring renewed thrust as buyers have overtaken control from sellers. However, RSI has instead been traversing sideways below 50, not yet exhibiting any signs of heading higher -- bearish. Note also the 50-day EMA has served as effective resistance, currently residing at 1337, and note the round-number of 1300 also is a potential level of resistance (red line).

I thought I'd also show gold versus expected inflation.

Source: Bloomberg

I've discussed here before the fairly tight relationship between the price of gold and expected inflation. The chart above shows expected inflation (5yr5yr breakeven rate) in the upper inset and gold price in the lower inset. It's my belief that the Fed ("Helicopter Ben") has tried to keep expected inflation close to the 3% level, but as shown in the upper inset the 5yr5yr rate gave way earlier this year, and not surprisingly so too did gold. Expected inflation has more recently risen to the 2.5% level, but note it's meeting up against its 50-day MA (resistance) and also note the 200-day MA has turned negative (bearish). I would also point out that gold in the lower inset had a Death Cross occur earlier this year (50-day MA crossing down through 200-day MA), this after many years of the 50-day MA remaining above the 200-day MA (bullish). Until the 50-day MA gets back above the 200-day MA, this condition remains bearish.

Bottom line: the picture continues to look ugly for gold and I would expect price to head lower at this key juncture. Stay tuned.


  1. The lower it goes the more you buy!!!!!!!

  2. yes and the more paper dollars they print, the higher gold will eventually go.....after all, paper is only a promise to pay, gold IS currency AND payment, across the globe for 6 thousand years and counting, paper has bought less in the USA for the past 100 years. It now takes 5 time as many dollars today to buy the same lifestyle as it did just 30 years ago....can't wait to see how that pans out over the next 30, how about you?... can you say Cypress?, Detroit?, etc....paper fools always fail, gold will be here when the world ends, no intrinsic value?....see if it's not liquid when the next Lehman, AIG debacle comes. Dow down 66% in '08, took 4 years and trillions of funny money to down 33% and recovered in less than a year without any bailout from anyone.........when this stock market and/or bond market on tooth pick foundations of promises from lying politicians heads south, let's see how much that paper buys

  3. My friend - the choice is not between paper and gold - it is between gold and the much better investment into technology and good sound businesses. You are blinded to your believe that gold is the greatest investment - bar none. That has been proven false millions of times and more. Continue with your blindness and you will lose great opportunities for real wealth. Good luck in either case.