Gold’s seasonal bias towards a late summer-early winter outperformance is a little less predictable than other sector seasonal influences. That’s because the U.S. dollar and world political events can influence gold more than most other commodities or stock sectors.
So, based on recent positive movements for gold, should we be looking at gold as an opportunity? My thoughts are—not just yet. Yes, the 200 day is flattening, and gold has penetrated it and the 50 day MA to the upside. And for those who believe in the significance of “golden crosses” (50 day MA going up through the 200 day MA)—that may happen any day now. While the recent pattern for gold is quite encouraging, you can see on the longer termed chart that gold needs to break a couple of very important resistance points to be truly out of the woods. First, the falling trend line at around the mid-1300’s is just now being broken. Will this be a temporary break (also known as a “spike”), or will gold continue to move steadily upward?
The next point of resistance comes in a $1400. You can see the significance of that level on the chart. Gold found temporary support, and then later resistance at that level through last year.
I’m not keen to guess whether gold will hold above its trend line, and break $1400. Sure, if gold moves higher, I may wish I had bought cheaper. But I tend to view technical breakouts as my cost of insurance. Breakouts provide a greater likelihood of a trend change in any security. Buying prior to a breakout is often a way of providing a nice exit point for current owners who are waiting to sell. Resistance on the charts is caused in part by investors and traders attempting to recover their losses. Rightly or wrongly, there will be some selling pressure by these traders in the coming days and weeks as gold takes its run at the levels mentioned above.