Best of the Week
Most Popular
1. Stock Markets and the History Chart of the End of the World (With Presidential Cycles) - 28th Aug 20
2.Google, Apple, Amazon, Facebook... AI Tech Stocks Buying Levels and Valuations Q3 2020 - 31st Aug 20
3.The Inflation Mega-trend is Going Hyper! - 11th Sep 20
4.Is this the End of Capitalism? - 13th Sep 20
5.What's Driving Gold, Silver and What's Next? - 3rd Sep 20
6.QE4EVER! - 9th Sep 20
7.Gold Price Trend Forecast Analysis - Part1 - 7th Sep 20
8.The Fed May “Cause” The Next Stock Market Crash - 3rd Sep 20
9.Bitcoin Price Crash - You Will be Suprised What Happens Next - 7th Sep 20
10.NVIDIA Stock Price Soars on RTX 3000 Cornering the GPU Market for next 2 years! - 3rd Sep 20
Last 7 days
Pre-COVID US Economy Wasn’t All That Great Either - 4th Dec 20
Bitcoin Breath Taking Surge - Crypto Trading Event - 4th Dec 20
Platinum Begins A New Rally – Gold & Silver Will Follow - 4th Dec 20
Don't Let the Silver (and Gold) Bull Shake You Off! - 4th Dec 20
Stronger Risk Appetite Sends Gold below $1,800 - 4th Dec 20
A new “miracle compound” is set to take over the biotech market - 4th Dec 20
Eiro-group Review –The power of trading education - 4th Dec 20
Early Investors set to win big as FDA fast-tracks this ancient medicine - 3rd Dec 20
New PC System Switch On, Where's Windows 10 Licence Key? Overclockers UK OEM Review (5) - 3rd Dec 20
Poundland Budget Christmas Decorations Shopping 2020 to Beat the Corona Economic Depression - 3rd Dec 20
What is the right type of insurance for you, and how do you find it? - 3rd Dec 20
What Are the 3 Stocks That Will Benefit from Covid-19? - 3rd Dec 20
Gold & the USDX: Correlations - 2nd Dec 20
How An Ancient Medicine Is Taking On The $16 Trillion Pharmaceutical Industry - 2nd Dec 20
Amazon Black Friday vs Prime Day vs Cyber Monday, Which are Real or Fake Sales - 1st Dec 20
The No.1 Biotech Stock for 2021 - 1st Dec 20
Stocks Bears Last Chance Before Market Rally To SPX 4200 In 2021 - 1st Dec 20
Globalists Poised for a “Great Reset” – Any Role for Gold? - 1st Dec 20
How to Get FREE REAL Christmas Tree 2020! Easy DIY Money Saving - 1st Dec 20
The Truth About “6G” - 30th Nov 20
Ancient Aztec Secret Could Lead To A $6.9 Billion Biotech Breakthrough - 30th Nov 20
AMD Ryzen Zen 3 NO UK MSRP Stock - 5600x, 5800x, 5900x 5950x Selling at DOUBLE FAKE MSRP Prices - 29th Nov 20
Stock Market Short-term Decision Time - 29th Nov 20
Look at These 2 Big Warning Signs for the U.S. Economy - 29th Nov 20
Dow Stock Market Short-term and Long-term Trend Analysis - 28th Nov 20
How To Spot The End Of An Excess Market Trend Phase – Part II - 28th Nov 20
BLOCKCHAIN INVESTMENT PRIMER - 28th Nov 20
The Gold Stocks Correction is Maturing - 28th Nov 20
Biden and Yellen Pushed Gold Price Down to $1,800 - 28th Nov 20
Sheffield Christmas Lights 2020 - Peace Gardens vs 2019 and 2018 - 28th Nov 20

Market Oracle FREE Newsletter

FIRST ACCESS to Nadeem Walayat’s Analysis and Trend Forecasts

Don't Fall for the Gold Stock Death Cross

Commodities / Gold & Silver Stocks Jul 13, 2011 - 12:54 AM GMT

By: Jeff_Berwick

Commodities

Best Financial Markets Analysis ArticleRecent trader 'chatter', to use the US Government term, has indicated that some people have become concerned with the "death cross" appearing in major gold stock indices like the Gold Bugs Index (AMEX:HUI).  A death cross is denoted when a short term moving average (50 day) crosses over a long term moving average (200 day).


Certainly, with a name like Death Cross, it does sound scary!  But, is it really something to be concerned about.

The Dollar Vigilante's Take on Technical Analysis

First, we should outline our take on technical analysis - or, more accurately, statistical analysis.  Here, at TDV we do use charts as part of our toolkit but it is only one small part of our analysis of any investment.

It should be noted that this stance leaves us to be attacked from two groups.  The first, the academic economist, usually discounts technical analysis as 100% self-fulfilling nonsense.  The other crowd, the pure "technician," consider us heretics for not making ALL our investment decisions from the tea leaves in the charts alone.

Nonetheless, we have always felt no need to submit to the pressure of groups and follow our own instincts and analysis no matter if that leads us down a lonely path.

In response to the academic economists, we agree totally that there is no knowledge of the future in the chart but we disagree with academics about the utility of technical analysis.  

Charts have utility to the professional investor.  We use charts carefully to understand which way the wind is blowing at the moment or whether there are signs of change in the trends.

Stock price trends can usually easily be explained by economic theory.  In the big picture by monetary inflation trends (one of the most important indicators we watch but one that is almost completely ignored by mainstream investors); but also, at the individual company (or stock) level we see trends explained by improving fundamentals AND outlooks.  The improvement in earnings or sales may often in of itself portend more improvement ahead, especially if it is a growth business; but there are also fluctuations in valuation that tend to trend for periods of time in relation to those improving fundamentals. Granted, this says nothing about the future.  But it does explain why trends exist without relying on the random walk hypothesis, or other equally unlikely theory.

Of course, from the chart technicians perspective, they don’t like to hear how limited technical analysis is, and how trading off charts alone is akin to gambling.

In summary, in our opinion, technical analysis is but one tool in a speculator’s and trader’s tool kit.

Death Cross in Gold Stocks is Wrong Much More than Right

That being said, lets look at some statistical facts.

Looking at the HUI there has been 6 'death crosses' since 2000.  Only one of them turned out to be significant, in 2008.  But we were already very bearish on gold stocks at that time due to other more important indicators including money supply growth (as calculated by the Austrian School).

There were death crosses early in 2002, late in 2004, again in 2005 and late in 2006.  The only time it worked was in the 2008 crash...but it would have kept you out of the gold stock market more than in over the past ten years.  You would have been shaken out each of those times - which is what we have continually stated is the greater risk - being shaken off the bull.

Gold Stocks Can Lag and then Catch Up in Violent Rallies

What often happens is that gold stocks do nothing for extended periods of time, even while the price of gold itself is rising.  Gold share booms are relatively shorter as a result, but they are more violent in their catch up rallies than gold prices.  The only time gold shares really outperformed gold greatly was in 2001-04 (as can be seen in the chart below).  Ever since then the bears have always used the relatively lackluster performance of the gold equities (relative to gold) as a bearish indicator forecasting lower gold prices.

With gold up $35 to $1,566 today and close to all-time highs and with gold stocks at very attractive current valuations, the odds are much more in favor of a gold stock move to the upside than the downside.

And with all the politicos in Washington scurrying around trying to find a way to increase the debt ceiling by more than $2 trillion and the European union falling apart in front of our eyes, it seems to us that even if the "death cross" were a much more dependable indicator that it still would be risky to listen to it and be out of the gold market at this time.

Subscribe to TDV today (90 day moneyback guarantee) to access our Special Report on How to Own Gold as well as get complete access to our newsletter and portfolio selections.

The Dollar Vigilante is a free-market financial newsletter focused on covering all aspects of the ongoing financial collapse. The newsletter has news, information and analysis on investments for safety and for profit during the collapse including investments in gold, silver, energy and agriculture commodities and publicly traded stocks. As well, the newsletter covers other aspects including expatriation, both financially and physically and news and info on health, safety and other ways to survive the coming collapse of the US Dollar safely and comfortably. The Dollar Vigilante offers a free newsletter at DollarVigilante.com.

© 2011 Copyright Jeff Berwick - All Rights Reserved
Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.


© 2005-2019 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in

6 Critical Money Making Rules