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Gold is magnetic – Didn’t You Know?

By:
Charles Thorngren
Published: Feb 12, 2018, 15:36 UTC

Gold is being a bit tricky at the moment - and unpredictable - if the comments in the press and on the internet are to be believed.

Gold is magnetic – Didn’t You Know?

The charts, on the other hand, tell a completely different story. Let’s take a look at the weekly chart for gold, going back to September 2015. This will give us some perspective on what is happening with gold right now – and an insight into what it is likely to do next.

Gold Chart
Gold Chart

History – and the markets – repeat themselves. This is useful in planning out any investment strategy – and there are tools available to help us with such planning.

Those who follow this column regularly will know we are huge fans of the “exponential moving average” indicator. These are shown on the main chart above as the blue, 21-day exponential moving average – or “EMA” – for short, the green, 55-day EMA, and the orange 100-day EMA.

Imagine these lines as magnets. They attract and repel the gold price – it either falls away from the lines or gets pulled towards them. Whatever happens – the gold price never strays far from them. You can see, from the chart, when those lines are “together” – in close proximity to each other – they create a stronger “magnetic” force which holds the price closer. When the lines are further apart and acting more separately, this “magnetic” force is not as strong – and the price fluctuates more wildly.

If we follow the gold price from its high, at 1) of $1,375 on the 15th of July 2016, we can see the blue-green and orange lines are widely spaced at this point. We can also see the price dropped from its high, at 1) down to $1,133 on the 23rd of December 2016, at 2).

In falling in this way, the gold price brought the blue, 21-day EMA, down with it. This had the effect of bringing the three EMAs closer together, rather like electrical wires in a cable – which, in turn, meant the “attraction” factor was stronger. This can be seen at 3), 4), and 5). The gold price does not stray very far from any of the EMA lines, in a negative direction, before being pulled back, or pushed away.

As soon as the blue line rises above the others the gold price is pushed higher as a result – until it is pulled back again.

Right now – it can be seen, at 6) the price is falling back towards the blue 21-day EMA from a high of $1,365 on 21st January.

And this is where it gets interesting from a predictive, and planning point of view – where is it likely to go next – using the signs on this chart – and the knowledge of what has happened before?

As can be seen from the arrow, at 2) through 5) the trend of the gold price is upwards. There is no reason to suppose this will change. If there is enough support at the $1,300 level, and the price does not close below this, then it should bounce higher off of the 21-day, or 55-day EMA.

At 7) the positive 14-day DI (green line) in the middle chart, has fallen (since January 1st on the daily chart – not shown) but is now picking up and changing direction, this will be reflected in this weekly chart, once there have been several days of the positive movement. Equally, the negative 14-day DI (red line) has turned downward on the daily chart and on the weekly chart already.

Lastly, at 8) on the lower chart, you can see that when the market hit it’s high, in July 2016, the pulse indicator was showing strong, light blue pulse signals – indicating a positive rally. When the market then fell – the pulse turned dark blue – a reversal of the trend – then red.

At the moment, the pulse is showing light blue. The strength/momentum is not as great as it was in the last rally – the climb is far more gentle – and less volatile. It remains to be seen as to whether it will gain more traction of just stay gently positive. As long as it stays light blue – and positive – the rally will continue again.

We remain bullish on gold. With the uncertainty in the stock market, global tensions, and pressure on central banks to raise interest rates – the runes look good for gold. Keep an eye on those indicators – in daily, weekly, and monthly timeframes – and these will give you an idea of the “gold magnet” will be repelling or attracting … good luck …

Noble Gold specializes in IRAs and 401(k) rollovers through precious metals and cryptocurrencies investments.

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