Technical indicators are always interesting but not necessarily trustworthy. It is a very bullish technical indicator when the 50-day moving average crosses above the 200-day moving average. That just happened for gold. Take a look at this:
Despite what all the commercials on Fox News promise, gold is not about to spike upwards, UNLESS you believe we are about to experience hyper-inflation or governmental collapse. As we have discussed here before, we will not experience hyper-inflation until the velocity of money returns to some more normal level. And, while we obviously face a real prospect of government paralysis, but I see no realistic prospect of governmental collapse. Even if the government were to collapse, it would not happen in the middle of the night before we have a chance to buy all the gold we can afford when the market opens at 9:30 AM five days a week.
At the same time, I don’t see gold going much lower either. The nations that consume the most gold are China and India, both of whom have seen their economy strengthen this year. While silver has gained some fashion status in India, as an alternative to gold, that is not apparent in China. Goldman Sachs predicts gold will drop another 25-30% or so by the end of next year, but I don’t expect that large a drop. The nicest thing I can say about gold right now is that it is “dead money” — doing nothing for awhile.
Technical indicators are interesting . . . but not your boss.