Here’s an article that drives home the need to consider context when looking for technical chart signals. First, take a look at that chart and notice how much blue ink is above the 0% line as compared to below the line. Fact is gold spends the vast majority of its time above the 200 day moving average. Now, has anything changed in the last few days regarding the fundamental reason why gold has been on the march for 11 plus years? I didn’t think so. So should we assume gold is going to buck the 11 year trend and go park itself below the 200 day moving average? I didn’t think so.
Second, on the rare occasion gold goes below its 200 day moving average, how far does it go? Except for 2008 and the meltdown, it has only breached the 200 day moving average by an average of 3%. Has anything changed in the fundamental argument for gold recently that leads you to believe the 11 plus year trend has changed? Has government solved their debt problems? Have the banks mysteriously become solvent, marked to market? Didn’t think so.
The folks calling for a the end of the bull market in gold hate gold. A bear market in gold would mean a bull market in paper, which they love desperately. They cheer for this and try to shape perception in order to make their dreams come true. See paper lovers adore their paper because it allows them to make a good living without producing anything. Sort of like a parasite. If the world was one where only hard money existed, they would have to work for a living, literally. They would have to produce something someone else wants. This is distasteful to a parasite. Thus they hate the idea of gold. Don’t be fooled by the parasites like Dennis Gartman, they just don’t want to think of a world where their paper is constrained.
Many are doing their damnedest Ph.D.-best to somehow fuse economic theory and technical charting, and state that a breach of the 200 DMA in gold is indicative of imminent price collapse. And then there are facts. Such as this nugget from Stone McCarthy which looks at previous episodes of the 200 DMA breach and concludes based on severity of trendline penetration compared to average, that “this is just one reason we see strong potential for a rebound as participants reduce short exposure.” So much for technicals.
Full note from SMRA:
For the first time since January 2009, gold closed below its 200-day moving average on Wednesday. Today’s Chart of the Day puts Wednesday’s -2.8% violation of this long-term smoothing line into perspective, by comparing it to the average violation of both the general and upward sloping 200-day average since 1999.
The slope of a moving average is something that many analysts fail to address when trying to determine potential turning points on a chart. Although gold has been working lower for more than 3 months now, the current upward slope of the 200-day line reinforces the fact that gold’s long-term trend is still to the upside.
If we simply consider the general direction of the 200-day moving average since the start of the yellow metal’s secular bull move in late 1999, gold’s average distance below this line is -3.70%, with a maximum undercut of -19.2%. On the other hand, if we only consider gold’s performance when the slope of the 200-day line is higher, the average violation is -2.19%, with a maximum undercut of -10.8%.
And SMRA’s short-term preice implication conclusion:
On its own, gold’s -2.8% violation of the 200-day line on Wednesday has already surpassed the average violation dating back to 1999. Short-term, this is just one reason we see strong potential for a rebound as participants reduce short exposure.
Lastly, absolutely none of this matter one iota when the central banking cartel resumes printing.