A Look at Gold (March 23, 2007)
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And now on to today's subject: gold. Glittering, beguiling, an ancient store of wealth--and a remarkably consistent store of value since late 2000:
Just at first glance, we notice that gold remains in a strengthening uptrend. We also note that it tends to stay in a channel or wedge formation for a year or so before breaking out to a new high.
We have to be careful here, of course, for wedges can break to the downside, too. One of my old friends asked me last year: are you a gold bug? I answered no. Meaning, I am not particularly wedded to the notion that gold is the only investment to have, or the best hedge against inflation or deflation, or any other "story."
But anyone looking at the 10-year chart has to ask: what changed in the financial world in late 2000 which caused gold to enter a multi-year uptrend? I don't have an answer, but I suspect it was a sense of unease with global imbalances in trade, debt, monentary expansion, energy and the election of an aggressively neo-conservative President backed by both houses of Congress.
Now let's look at a one-year chart:
What we see is a compression of the 50-day and 200-day moving averages and an uptrend in the MACD. Now conceivably the HUI could break the wedge to the downside and drop back to support at 280--or it could finally vault through the triple-tested resistance at 363. We would be remiss not to note--but not over-stress--last year's seasonal strength in the April-May period, which lies just ahead.
As usual, this is not investment advice; do not base your decisions on what others say, make up your own mind up based on all available evidence and your own financial situation, etc. etc. etc. These are charts, dang it, not advice. There is a difference. Charts can be interpreted various ways, and these are offered in the spirit of a beginner's observations.
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