According to the technicals, the long-term trend in gold is still in play. COMEX gold futures (COMEX:GCG14) fell to $1,210/ounce on Dec. 6, 2014 and since then we have seen somewhat of a bounce higher. The market since about Dec. 3 until now has really been in a sideways type of trade, despite the bearish fundamentals that have hit the market recently. For example, just look to a Bloomberg news article written Dec. 16 titled, "Gold funds see unprecedented 31% slump with world losing faith." The first line of the article reads, "Investors are dumping gold-backed exchange-traded products at the fastest pace since the securities were created a decade ago, mirroring the steepest price drop in 32 years." The article goes on to read, "Investors see less need for 'disaster insurance,' Fed Chairman Ben S. Bernanke told U.S. lawmakers on July 18. Traditionally, investors turn to gold in times of turmoil as an alternative store of wealth to equities and the dollar and as an inflation hedge." Which again raises the question that I have been asking for months now. Is gold even a good hedge against inflation?
According to The Hightower Report, it's more complicated than ever for gold futures. A Hightower report dated Dec. 11, 2013 stated, "In our opinion, gold is in the midst of a transition from being a safe haven currency surrogate instrument back into a classic physical commodity with a return to good old fashioned supply/demand tightness." Well better late than never, I guess. I have been writing about this for some time now and even more than gold becoming a physical commodity traded on "old fashioned" supply and demand, I have watched as it trades as a "riskier asset."
To be truthful, from a fundamental standpoint I haven't seen a market change so much so fast in all of my 15 years in the industry. I'm not sure how gold will trade fundamentally from one day to the next. I watch the market move up $30/ounce in a day then down $30/ounce in a day and never know why until after the fact when some trustworthy news source states a fundamental excuse for the move that seems convenient. I believe that both fundamentals and technical are important in most markets. Not in the yellow metal, though. I find technicals are far more reliable than fundamentals.
Technically, on the daily February gold chart on the next page, I have added some of my favorite technical indicators the 9-day simple moving average (SMA, red line), the 20-day simple moving average (SMA, green line), and the 50-day simple moving average (SMA, blue line). As well as Bollinger bands (BB'S, light blue shaded area), volume and candlesticks. The very first item that I notice from these technical indicators is that the bottom line of the Bollinger bands (BBs light blue shaded area) has gone from pointing lower to sideways along with the 9-day SMA (red line).
However, the market itself is still in a downward trend, just not a super-trend down. The reason my technicals tell me the market is in a downward trend is solely because of the 20-day simple moving average (SMA, green line). This indicator is pointing lower on a sharp, steep angle and the gold market itself is trading below the indicator. In fact, the market actually closed right on the 9-day simple moving average (SMA, red line). For what it's worth, it is this 9-day simple moving average that can't really make up its mind. One day it's pointing down, the next it's pointing up. That leaves a sideways trending indicator and the same goes for the bottom line of the Bollinger bands (light blue shaded area). That leaves three out of five indicators pointing down and 2 pointing sideways. The 20- and 50-day simple moving averages (green and blue lines, respectively) are pointing lower on good sharp downward angles. So is the top line of the BBs (light blue shaded area). The two sideways trending indicators are the 9-day SMA (red line) and the bottom line of the BB's (light blue shaded area).