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Gold Confusing Trend Amidst Long-term Weakening Bull Market

Commodities / Gold & Silver 2009 Mar 29, 2009 - 02:56 PM GMT

By: Merv_Burak

Commodities Best Financial Markets Analysis ArticleOver the past three weeks gold hasn't been able to figure out which way it should go, or is it just that speculators are not sure what to make out of the global economic mess. Just a thought but as I understand it government taking over a countries economic activity has never in history resulted in success.


GOLD : LONG TERM

Every now and then it's instructive to see where we've been in this gold bull market and if we are even still in it. The long term weekly chart shown uses a one year simple moving average and also a one year RSI indicator. Usually in my work I require the moving average and the RSI to be telling the same story to call a bull or bear market. With this chart that would be a very long term time period call. We had a bull call in late 2001 and a bear call late last year. Since the bear call the RSI has moved back into its positive zone but the moving average remains very slightly in a negative slope for a mixed message at this time. Even should the price of gold remain static the moving average is expected to slowly turn upwards simply because the price at the beginning of the year period would be moving lower, below the present price. One would prefer the moving average turn upwards due to an upward movement in the present price not a downward movement of the historical price, but that's the construction of the moving average line.

Two additional points of interest on this chart are the FAN Principle trend lines and the weakness in the RSI as the price of gold was making periodic new highs. On the FAN trend lines, the third FAN trend line is usually a “blow-off” stage for the move and too often (as here) a reversal signal. The RSI weakness suggests a trend that is losing its strength as it continues higher and such strength loss cannot continue. Sooner or later the price trend must turn in concert with its strength. Although we have had a good price move these past few months note the continuing weakness in the RSI suggesting continued weakening in the strength of the price move. At the present time this is not giving us a great deal of encouragement that the price move will continue. Either the momentum indicator (RSI) has to improve or the price is most likely going to take another tumble.

In the mean time let's see where we are from a review of our normal long term indicators. The price of gold remains above its long term positive sloping moving average line and the momentum indicator is still in its positive zone. However, the momentum indicator is moving in a sideways direction and is below its negative sloping trigger line. The volume indicator is also moving in a lateral direction but below its long term negative sloping trigger line. From all this the long term rating remains BULLISH but showing signs of weakness.

INTERMEDIATE TERM

On the intermediate term the price of gold is sitting right on top of its intermediate term still positive moving average line. The momentum indicator is also still in its positive zone. As with the long term, the intermediate term momentum is moving in a lateral direction and is below its trigger line. With the lateral move the trigger line is going through a whip-saw motion and today is pointing upwards, but only slightly. The volume indicator is trending slightly negative and is below its negative sloping trigger line. The intermediate term gold position is still rated as BULLISH but also weakening.

SHORT TERM

Although gold has been moving basically sideways over the past few weeks the strength seems to be towards the down side. Gold closed below its short term moving average line and the line already was sloping downward. The momentum indicator has been in a basic lateral move and has once more dropped below its neutral line into the negative zone. It is below its negative sloping trigger line. As for the daily volume action, that leaves a lot to be desired. The daily volume is perking above its short term average volume line. Unfortunately the increased volume seems to be on negative price movements, not good. The short term rating is now BEARISH .

As for the immediate direction of least resistance, I'll have to go with the downside at this time. The aggressive Stochastic Oscillator (SO) is pointing sharply downward and is inside its negative zone. The trend of the past few days has been to the down side and I think it will continue.

SILVER

We are still in that “handle” period of the saucer pattern. The price action over the past few weeks has been in a lateral direction similar to gold. The price remains above its intermediate term positive sloping moving average line but not that much above. It could drop below the line with only a day's worth of negative action. As for the momentum indicator, it remains in its positive zone. It just dropped below its trigger line but the trigger remains positive for now. The volume indicator dropped sharply during that end of February price plunge but is again inching slowly higher. The intermediate term is still BULLISH but looking weak and the price must stay above that moving average line. In other words it should remain above the $12.50 level.

Precious Metal Stocks

It was a so-so week for the gold and silver stocks with the average stock barely making it into the plus zone. The stocks in general are still moving higher but at a very limited pace. With a few of the highest quality stocks on the decline the quality sector was lower versus the general run of the mill stock. The stocks started to take a breather a few weeks back and maybe they are not finished yet. All indications at this time are for a further upside move once the breather is over.

Merv's Precious Metals Indices Table

Well, that's it another week.

By Merv Burak, CMT
Hudson Aero/Systems Inc.
Technical Information Group
for Merv's Precious Metals Central

For DAILY Uranium stock commentary and WEEKLY Uranium market update check out my new Technically Uranium with Merv blog at http://techuranium.blogspot.com .

During the day Merv practices his engineering profession as a Consulting Aerospace Engineer. Once the sun goes down and night descends upon the earth Merv dons his other hat as a Chartered Market Technician ( CMT ) and tries to decipher what's going on in the securities markets. As an underground surveyor in the gold mines of Canada 's Northwest Territories in his youth, Merv has a soft spot for the gold industry and has developed several Gold Indices reflecting different aspects of the industry. As a basically lazy individual Merv's driving focus is to KEEP IT SIMPLE .

To find out more about Merv's various Gold Indices and component stocks, please visit http://preciousmetalscentral.com . There you will find samples of the Indices and their component stocks plus other publications of interest to gold investors.

Before you invest, Always check your market timing with a Qualified Professional Market Technician

Merv Burak Archive

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