Monday, September 9, 2013

Gold update

When I last wrote about gold, its 50-day moving average was once again serving as key resistance, with price unable to get through the MA and steadily declining.


However, unlike on several occasions in the past, this time gold was able to finally break through the 50-day MA (thick purple line in chart above). Gold's price went on to eclipse the $1400 price level before pulling back more recently. Notice the multiple time period moving averages clearly show a change in trend last month as all of them were able to follow through with price and breach the 50-day MA to the upside. I believe this break in the downtrend is very meaningful and bodes well for gold, but it wouldn't be surprising to see price retrace a bit more to $1330-$1350 -- what appears to be the new support level.

It's also very encouraging to see money flow continue to climb.

Source: Bloomberg

For both GLD and GDX, money flow turned up in earnest around June and has continued to ascend, inferring underlying accumulation of shares.

I would mention a potential dark cloud remaining for gold is real interest rates. Typically the price of gold fares better when real interest rates are declining.

This relationship can be seen in the chart above, displaying the 5-year TIPS with gold. In general, the two tend to move in opposite directions, but more recently they have been rising in tandem. I would expect one to eventually change direction. Yet it's worth noting there's a fair amount of debate concerning this relationship, with many moving parts to consider such as Fed policy in relation to economic conditions, where we are in the interest rate cycle, the degree to which expectations are baked in, etc. Nonetheless, the chart above is something to keep in mind when assessing gold.

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