By: Mike Hammer
Chartists are finally noticing that SMAs for gold have been forming so-called death crosses for a few weeks now. Naturally, this is disturbing gold news for many. Here is the one this Gold Enthusiast noticed back in mid-May.
A death cross is when a shorter-timed SMA (Simple Moving Average) line cuts down through a longer-term SMA, in this case a 20 day SMA vs a 200 day SMA. As you would expect, everyone seems to have their favorite formula for the timings of these things. More recently the 100 day SMA fell through the 200 day SMA. And still the world didn’t end, gold just cheaper. For a while at least.
The problem with SMAs is that they’re not always great predictors. You can see on the 1-year chart of GLD above that the 20 day SMA dropped down to the 200 day SMA 3 times over the past year, with only the most recent one producing a reliable signal. That’s just a 33% success rate. You have to have a good risk-reward trade on offer to make money with those kinds of odds, which is why this Gold Enthusiast didn’t go short big time in mid-May. Gold trades just haven’t shown good trading parameters lately.
But this last one would have made a nice trade for sure. Congrats to anyone who shorted gold or miners recently. But you might not want to hang around in such a trade for very long.
Take a look at the RSI included at the bottom. That’s saying gold may be oversold big time right now. So if the US Dollar shows any sign of weakness, it’s a good time to look around for good risk-reward trades and take a small position.
That always seems to be the key for success. Success doesn’t come from just one indicator, you’ll usually find it in a small collection of indicators that together mean much more.
Signed, The Gold Enthusiast
DISCLAIMER: The author holds no position in any mentioned security. The author is long NUGT, JNUG, and a handful of small mining stocks, and may trade or option these positions over the next 48 hours.
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