If you want to know if an investment is likely to go up or down… or stay the same…take a look at its price chart. Preferably, the daily, weekly and monthly chart so you get an understanding of the short term, medium and long term outlook.
We looked at all three of those last week. So let’s look at the weekly today:
The first thing you notice when you look at this chart is that the price slants from the top left to the bottom right. That shows it is definitely bearish.
Look at the well defined channel for the last 18 months or so. Gold has been steadily trending downwards within the channel (red lines) depicted on the chart, making a series of lower highs and lower lows.
On Friday last week, an outside reversal was made where the price fell to lower than the price of the previous day, but closed out above the high of the previous days’ close. (Marked with a blue oval).
This is a bullish signal and it looks like gold could rise up in the short term to the 1220 or maybe even the 1250 resistance level. However, it will be really hard to get further than this and it is most likely that gold will resume its bearish trend thereafter.
All three indicators on the charts are currently in bearish mode. The RSI is below 50 and not bullish. The MACD is bearish having crossed below its signal line and both lines are pointing downwards. The ADX is bearish, with the -ve DI (directional indicator) line above the +ve DI line. And the ADX line itself, is only at 20, not indicating any strong trend at all. Once the ADX line goes above 30, it indicates a strong trend which can be either up or down.
Let’s see what the GLD ETF is telling us about gold. I look at the amount of gold held by the ETF to provide an indication of western demand for gold.If the figure is increasing, gold demand is up, if it’s decreasing, it’s down.
Gold holdings at the beginning of January were 709.02 tonnes.
They increased from there to 773.31 tons by 5 February, and have since declined to 744.4 tonnes. Thus, though GLD holdings have increased since the beginning of the year, they are currently declining, indicating reduced interest from Western investors.
The outlook for gold is currently very short term positive with resistance levels at 1220 and 1250. Gold is unlikely to work through the 1250 level. It is more likely to continue its downward trend within the red channel depicted above.