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« Gold Price Performance After Golden Crosses In The Last 4 Decades | Main | Maguire - Goldman & Media Full Of Shit When It Comes To Gold »
Sunday
Mar232014

The Golden Cross For Gold Is Not Always A Positive Indicator

Background

An exciting major event is about to occur in the precious metals arena this very week and you will no doubt see many references to it and that is formation of Golden Cross. Gold bugs including me will be looking for this event to become the ignition for gold to rally to much higher ground.

We will commence with a definition of a Golden Cross as defined by Stockcharts.com: A signal where the shorter moving average moves above the longer moving average. Usually, this term is associated with the 50-day moving average crossing above the 200-day moving average.

There is also an opposite and negative event known as the Cross of Death; this is when the shorter moving average moves below the longer moving average, for example, the 50dma crossing below the 200dma.

The Golden Cross

As we can see on the above chart a golden cross is about to be formed this week. However, before we bet the ranch on gold prices making a moon shot we might want to take a look at what happened when this cross appeared previously on the gold chart. It took place around September 2013 and as we can see things turned to custard with gold prices peaking and then falling from $1650/oz to $1200/oz in June 2014.

This week’s Golden Cross is occurring at a much lower level and should be very positive for gold, but don’t count on it. The RSI has left the overbought zone and is heading south. The MACD has formed a negative crossover and is now also heading south. It should also be observed that gold prices managed to form a new ‘higher high’ recently but was unable to hold it for more than a few days, which is disappointing as it suggests weakness.

The Precious Metals Mining Stocks

If you take a quick look at the Gold Bugs Index, the HUI you can see that it more or less followed gold. In 2013 the HUI was standing at around the 500 level, it went on to fall to around the 200 level, slashing more than 50% off the value of the gold mining stocks, a gut wrenching experience for those who were heavily invested in this sector.

Conclusion

Technical analysis is not a perfect science and as investors we should not rely on any one indicator on which to predicate our trading strategy. Even when we have a situation where a number of technical indicators appear to be lining up with each other is it very important to have a good grip on the big picture and a good understanding of the fundamentals. The fallout from the Ukraine, Janet Yellen’s tapering programme, the continuing purchases by the Chinese, to mention just a few, are all playing key roles in gold’s progress.

The gold market was a profitable sector to be invested in for over a decade or so, but the last two years this has not been the case, so great care and patience is now the order of the day. We are hunting for what we think are bargains in the mining sector in anticipation that the bottom may not be in yet and a final capitulation may still lie ahead of us. To that end we are largely in cash, but are buyers when we think that a stock has been sold off too aggressively and therefore offer us great value. Although I am not a big fan of the US Dollar it has to be noted that it did outperform gold, silver and the miners in 2013 by a long way

We will keep most of our gun powder dry and wait until we are absolutely certain that this bear phase is over before adopting a more aggressive stance on the acquisition trail. We are weary of this bear phase and we will trade accordingly until this bear goes into hibernation.

Got a comment, fire it in, especially if you disagree, the more opinions that we have, the more we share, the more enlightened we become and hopefully the more profitable our trades will be.

Take care.

The miners have started 2014 very well indeed on the back of rising gold prices, so the question is; is this the real deal? 

If you would like to know which stocks we are buying and selling please join us atStock Trader our premium investment service.

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Reader Comments (8)

It's all guesswork given that JPM controls Comex pricing...for now.

My interest isn't in whether there's a breakout. If there is, fine. My assumption is that this little run from late December is over and what I want to see is whether the criminal banking element working at the behest of the BIS, Fed, Exchange Stabllization Fund, et al. can manage to push prices to a new low below the June December troughs. And do they even want to try?

I don't think they'll be able to if they do want to, but I want to see how much they CAN knock it down. Failure to push price to a new low in the wake of a few of their patented bear raids will be very meaningful to me. Give me a higher low and then a higher high above the $1430-40 area and I'll be impressed. That'lll mean Morgan has thrown its best punch ... and we're still standing. And if there are no bear raids where they unload several hundred tons in seconds, that tells me something too. They may be done, at least for now.

This is a completely rigged market. I make the assumption that the chart shows what JPM wants it to show. Be careful about being lured into traps. If you're a trader, buy into their bear raid price collapses and sell into the false breakouts they're allowing the tape to be painted with. Not much risk to that strategy with prices so stupidly cheap...if you can hold.

You KNOW the Powerz That Be don't want to see a double bottom followed by a clear breakout above $1440, so if that happens, it means they're lost control of the rig and are on the defensive.

March 24, 2014 | Unregistered Commenterfallingman

This golden cross has attracted my interest, and I have been watching for it awhile.

As you know, the Cross of March ’09 proved to be a significant event. However, the chart shows that the best time to buy was NOT when the Cross occurred, but rather gold’s later demonstration of its respect for the 200-dma. After spot bounced on that line, it was off to the races (until the death cross occurred).

I too am now keeping my powder dry, waiting to see if spot finds support at the 200-dma. If so, I am once again a buyer.

Thanks,

March 24, 2014 | Unregistered CommenterEric

I think a dollar breakdown is coming up in the next two weeks ! N a Dow top has formed now !!! Rush will be on for silver n gold !

March 24, 2014 | Unregistered CommenterRajesh

Hi bob ,
I read yr article . Very practical and interesting .
My personal opinion is that gold n silver need to consolidate for a month or so before the next up move . Personally I feel gold on a closing basis should hold 1288 and silver 19.35 . I think May onwards we should see the new bull market start . My targets for gold with a closing stop of 1288 is 1650 by this fall n silver with a closing stop of 19.35 for a target of 30 by this fall .
Regards

March 24, 2014 | Unregistered CommenterRajesh

I think it is significant that Silver did not go along with Gold during the recent run-up, suggesting it was not fundamentals but a safety play for Gold. The CB's and their BB Agents will remain in control so long as the paper markets set the price of Gold. That said, where will the physical Gold come from in 2014 to supply physical demand from China. GLD is already drained and the CB's are no longer selling or leasing physical. Looks like an interesting time just ahead, especially when the equity markets finally collapse.

March 25, 2014 | Unregistered Commenterphilipat

This would have been a useful article back in the "old days", when TA worked. Nowadays in the "all-manipulation, all-the-time" markets TA is simply another way for Wall Street to lead the sheep around. In a market where some animals are more equal than others, you can't depend on human psychology driving price in a predictable manner.

Take the Sept gold plunge you mentioned. That was not a golden cross that "didn't work"; it was a golden cross that properly indicated a bottom forming in gold and thus forced the government/banks to commit a huge crime in order to force the decline to continue. That cannot be considered as relevant to the TA of the situation. Or put another way, tha TA forced the criminals to act, but does not itself indicate what the criminals will do.

Let me give you another example. Gold used to be fixed at $35/oz. Then it was "un-fixed" and proceeded to float. Any sort of TA performed on gold during the $35 era would indicate that it would continue at $35... so, did the TA "fail" when gold was floated? Of course not - someone changed the rules and that's not in TA's job description.

The correct interpretation of our current situation would be "Gold is again forming a golden-cross bottom, and this may again require the powers that be to bend the rules". So the prudent investor recognises that nothing at all can be told from the golden cross - the result will depend on when and how the criminals act, and that cannot be predicted using TA.

Eventually, as more investors become aware of the true nature of the market, TA will again start to have a predictive value. When enough investors know that a supposedly positive golden cross will likely generate a criminal response, their apprehension and reluctance to buy will be reflected in the price - and the golden cross will have made its transition from a positive indicator to a negative indicator. (It will probably become the "golden helix" or something like that.)

There has been discussion on whether JPM is actually massively long gold now, and has given over the short game. THIS is the kind of data that will determine whether the golden cross "works" or "fails"... not any supposed TA record of the golden crosses reliability as an indicator.

March 25, 2014 | Unregistered CommenterMike

Bob:

I don't write a lot of these replies, but here goes.

I have been in the precious metals markets since about 2005. What I have noticed, particularly recently, is that the action of the market seems to be under massive and increasing,corruption. Even more importantly, most recently, "the gloves are off", with little or no care about hiding or disguising the corruption. I think a person would have to be a fool to argue that the market is not manipulated, constantly, for the benefit of some, at the expense of the majority. In particular, gold and silver are under constant suppression.

That is the only thing that can explain what has gone on, and continues to go on. As one example, the constant and regular drops in the price of gold just prior to market openings, or the drop in prices often experienced prior to major events, or the 3-sigma event of April and June 2013. No "investor for profit", individually or as a group, intentionally loses his own money in this manner. So, either they have figured out how to "make up their losses on volume", or they have figured out how to lose someone else's money. I vote the latter, only because there must be constant "leakage" of potential profits to people who have figured out how to follow their trail of activity.

Several more things of extreme importance, the 1000 tons of gold that went into China in 2013 will not be seen again any time soon. These guys are one-way only, strong-hand buyers, and long-term holders. The 500 tons or so that went "out" of the ETF's cannot be replaced at anywhere near the price they sold it at, so again, another "Brown bottom" incident, but probably not a mistake, this was intentional, to the benefit of China, and to the detriment of the US citizenry specifically. Finally, the Indian election coming up beginning in 3 weeks or so has the potential to bring Indian citizens back on line. Just this short list of recent activity is enough to cause massive changes in the gold market, and probably will.

The summary is quite simple, "what can't go on, won't go on". Ultimately, this must all end very badly for the majority of market participants, and even for PMG participants without a full understanding of the game. I have no confidence in the charts particularly, in the face of chronic manipulation/corruption. I have 100% faith in the ability of the market to ultimately force the adjustments that will be necessary. And let me be especially clear, "the market" means the full force of the almighty God's economic law; as there are earthquakes, volcanoes, hurricanes, all part of the creation, as their is gravity and laws of physics, there are immutable, unchangeable economic laws and consequences for the violation of those laws. The government and related manipulators cannot go on indefinitely, and their system overall becomes increasingly unstable as we go along.

If people had a brain and a heart, I would have more hope, but it is manifestly clear that an extremely large proportion of the people have only a pie-hole, stomach, and the ability to spread fertilizer.

March 25, 2014 | Unregistered CommenterJim

Enjoyed your comments, thank you. I sense that gold will go lower yet even though JPM has a long sided corner at the moment. I agree with Ted Butler who recently said that the only fundamental that matters is the supply/demand fundamental in the paper comex market. Eric Sprott has shown in his writings that China bought in excess of world supply last year (2600 tons). Call me crazy but I believe in conspiracy theories and I believe that JPM et al are in cahoots with the Chinese as the Chinese were still buyers of US debt in a recent article by Ed Steer's Gold and Silver daily several months ago. The big moves will be when the shorts fail to deliver as where will they find the supply ?
The next leg down will probably shut down some juniors so I agree with your advice to build cash and wait. Patience certainly is a virtue. Kind regards,

April 8, 2014 | Unregistered CommenterLenny

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