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« Agnico-Eagle Mines Limited: RSI Dips below 30! | Main | Agnico-Eagle Mines Outlook Looks Good »
Tuesday
Apr142009

Gold: Watch the RSI

Gold Chart 15 April 2009.JPG
Chart courtesy of Stockcharts

The Relative Strength Indicator or RSI as it is more commonly known is one of many indicators used by analysts, researchers and investors in an attempt to time their market entry and exit points. Timing is paramount to a good investment decision and there are many combinations of indicators and factors that must be considered before making that final decision to buy or sell. Fear and greed are generally regarded as the biggest movers in the market place and they can push a stock or a commodity into the oversold or overbought territory. This aberration can be detected by the RSI as gold swings in either direction. In general terms if you can buy when the indicator touches or goes below '30' you should be reasonably comfortable that you have bought at a low for gold. At the other end of the scale if you can sell when the RSI touches or goes above the '70' mark then you can be reasonably comfortable that you are getting out pretty close to the top.

Now if we examine the chart for gold covering the last twelve months we can see that there have been three buying opportunities as the RSI hit the '30' level. Each of these trigger points were followed by rallies albeit of differing magnitudes. A fourth opportunity appeared to be on the cards earlier this month however this did not materialize as gold bounced off its 200 day moving average and headed back towards the $900/oz area. However there does appear to be a downward channel forming over the short term consisting of lower lows and lower highs so gold could once again test the lower channel line with a move down to the $850/oz level.

Some would argue that the bottom is already in and its up, up and away from here and they might well be correct. No-one knows for certain and our humble opinion is that we will see gold move lower and hit or break through the '30' level on the RSI. Should this happen then we will become buyers once again of quality gold producing stocks. Being patient and sitting on your hands is not always easy and picking the bottom of a cycle is almost impossible, however, we believe that the RSI could guide us to an advantageous entry point. The next few weeks could present us with such a buying opportunity or gold could go her own way regardless of any chart analysis.

For the moment we are keeping our 'opportunity cash' under wraps in the hope that our trigger point is met.

Trading decisions belong entirely to you as your circumstances are different from ours and we trade to suit our investment criteria and cash position.

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Reader Comments (5)

Trilliant Exploration is an emerging mineral exploration and development company focused on Ecuadorian Gold. From the international experience of its principals, Trilliant Exploration has developed useful geological models for gold and other mineralization in El Oro Province in Ecuador. With a winning team and good connections in the financial markets, Trilliant Exploration is poised to become a leading mining company in Ecuador. (OTCBB: TTXP) http://www.ttxp.biz.

April 15, 2009 | Unregistered CommenterWilliam Lieberman

I've been a gold/silver bug for years. This is the first time anyone lucidly explained the right time to buy. Thanks a lot, Buddy!!!! I mean it!!!!!

April 15, 2009 | Unregistered CommenterJohn Kozon

John,

If you want to know more about the RSI and other technical indicators then do visit Stockcharts.com - this is an excerpt from their site, with a link to it:

Developed by J. Welles Wilder and introduced in his 1978 book, New Concepts in Technical Trading Systems, the Relative Strength Index (RSI) is an extremely useful and popular momentum oscillator. The RSI compares the magnitude of a stock's recent gains to the magnitude of its recent losses and turns that information into a number that ranges from 0 to 100. It takes a single parameter, the number of time periods to use in the calculation. In his book, Wilder recommends using 14 periods.

http://stockcharts.com/school/doku.php?id=chart_school:technical_indicators:relative_strength_index_rsi

Bob

April 15, 2009 | Unregistered CommenterGold Prices

thank u , Can u pls send the current gold price chart.

April 15, 2009 | Unregistered CommenterL

Try having a look at Clearstation.com for graphing
http://clearstation.etrade.com/

It is owned by eTrade and it is free. It covers US and Canadian stocks, I watch GLD with it.
They have brilliant educationsl material. They have a standard 3 point view for stocks consisting of Price movement, MACD Stochastics and you can also bring up other indicators with the Interactive option.
There is a lot of rubbish and pumping and dumping in the stock discusssions so do not get caried awasy with it - concentrate on the fundamentals.

April 17, 2009 | Unregistered CommenterIan

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