Is Gold a Falling Knife or a Great Value?
Before we look at the GLD charts I want to move a little off topic... It's hard to root against anything with the marketing budget the size of Gold Bullion. The commodity has thousands of 'brand ambassadors' worldwide, which can usually be found on talk radio or 24 hour cable news advertising spots. It would be challenging to find a single company, or for that matter, any other currency or commodity with a better unified voice than gold. The unified message that gold brokers distribute is that of growth and this has been the message pounded into investors' heads for the past several years. I wonder how much of the increase in gold value is attributable to this? Feel free to provide comments below.Regardless of the reasons why gold has risen it still remains in a longer-term uptrend. As with any long-term bull trend it makes the short term pull backs very appealing. Gold is experiencing one of these appealing pullback now. Based on my calculations looking at weekly chart gold is currently at strong support, which means it is either a great value or a falling knife if the level breaks. Looking at weekly charts this means that closing price on Friday will be technically significant. And since we do not know where gold will move from here the best way forward is to choose a side and set your exit strategy.
As a point of reference on current gold sentiment I looked at Intrade, the popular predication market site, which has provides us with individuals' insight on the future of gold. This particular market
is not very liquid but you get the idea of what these participants believe-they are bearish on gold.As a contrarian (and long-term bull on gold) I find this sentiment comforting. Take a look at the chart below and you can see the possible value point where we find ourselves today. This is the weekly chart so this trend list must hold over the next two weeks. I would consider it 'broken' given two consecutive weeks below. The other chart shows GLD on a daily chart with key levels based on a 50-day EMA and 200 day EMA. While we are below the 50-day we remain above the key 200-day (with breathing room) and provided that the 50-day moving average remains above the 200 this pattern remains supportive of a bull trend.
At this point and in my view, gold is more likely to be a 'great value.' The longer-term patterns remain strong despite the strong pullback experienced over the last month. What's your take on GLD, value or short?
GLD -Weekly Chart
GLD Daily with 50/200 Day Moving Averages
By Andrew Hart
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During the 90's, gold was suppressed by western central bank selling, ending in the famous Brown Bottom when then-exchequer Gordon Brown sold off most of England's gold reserves at the absolute bottom in price. Since then, central banks in emerging markets have been buying gold. This has put a long term upward bias on gold prices.
When the IMF sells its gold to "third world" countries to fund bailouts to western countries, you know the trend has changed.
Gold may have trading corrections, but it is up for the long term.