Gold Cautious Moving Forward

Loose monetary policies have caused a surge in commodities and stock markets around the world. Part of the surge in gold prices have been attributed to the weakness of US dollar where investors dump US dollars in the expectation that inflation will raise and Gold will better preserve value.

However, US dollar has strengthened considerably this week. For example EURUSD currency pair dropped below the 1.430 level with EURUSD currency pair on Friday’s trading session.

So where is the direction of gold heading?

The phase chart is still in bullish phase. However, warning signs are appearing. The price dropped below its 50 day moving average on Thursday briefly dipping to “Warning” phase. It is still early to talk about a trend reversal at this stage but the price behavior warrants some caution as a drop below its 50 day moving average is a sign that investors may start to take some profits off the table.

Gold In Warning Phase

Gold price has fallen back to January 09 levels as seen in the price action of SPDR Gold Shares.

It is currently in “Warning” phase with the price stuck between its 200 day and 50 day moving average.

In April trading, the price of SPDR Gold Shares bounced off its 200 day moving average twice. It looks set to test it again with a downward sloping 50 day moving average.

For the bears, a good opportunity will be to short gold when it goes below its 200 day moving average. For the bulls, they will be looking at a break away from the 50 day moving average as confirmation of the continuation of the uptrend.

Gold Update

Price of commodities has soften a bit and gold has not been spared the downward move.

streetTRACKS Gold ETF has moved down from a its July high and is now below its 50 and 200 day moving average. It is currently in “Distribution” mode and looks like to move into “Bearish” phase.

It has stayed in “Distribution” mode for 14 days in a row, not a good sign for the Bulls.

Gold ETF Update

The streetTRACKS Gold ETF slipped into “Warning” phase on 20 Mar 08 and it is now below its 50 day moving average.




Similar price pattern occurred last year from 16 May 07 to 9 July 07 where it stayed in “Warning” phase for 35 trading days.

We are now in “Warning” mode for 25 trading days. A lot will depend on whether the index can hold above its 200 day moving average of 80.87. If you are thinking of buying into Gold, I suggest that you hold on to your cash and wait for the index to move back to “Accumulation” or “Bullish” mode.

GOLD Phase Analysis

Gold has been on an uptrend since 2005. Look at the graphs of streetTracks Gold Fund, an ETF that follows the price of gold bullion.




It has been almost a one way traffic for Gold price since 2005. In August last year, it went down to "Warining" and "Distribution" phase but the bears weren't successful in pushing the price to the "Bearish" stage.

And with USD getting weaker and US FED cutting rates, the chances of Gold going higher is definitely high.

So congratulations to those that are vested in Gold. The trend is definitely on your side.