Is the Price of Gold Starting to Break Down?

Today, I want to discuss this crazy obsession I have against the rising price of gold.  I hate that gold has moved upward relentlessly since 9/11/2001 when the camouflage from scary trends that were being winked at in the prior two decades started lifting.  Gold, in my view, is nothing more than a "Fear Index."  So when fear is going up, something is rotten and scary and unsettling and means that a major new trend has to emerge.  So, I'm searching under every rock to see and hope we can put a lid on the price of this "Fear Index."  If we can, I think it will be a major signal that things are getting back to a more positive course.

The chart above shows the price of gold since 1970 with its 65-week moving average (plotted as the red line).  I was searching for some moving average that historically has furnished a strong resistance to bullish (rising fear) periods for gold.  You can see that for four decades every bullish move has persisted until the price of gold penetrated the 65-week moving average...except for the instance in 2008's financial collapse.  You can also see that when the 2008 panic occurred, the relative strength line shown below the price plot was in a strong uptrend.  And because we remember that every financial instrument got hit then, as everyone was going to cash, we're giving that a bye for this 40-year review.

Next, let's expand on this by looking at the next chart that just shows the action of gold for the last 7-8 years.  You can see below that the price of gold peaked out in September of last year and now has completed two lower lows and lower highs.  It is now almost exactly sitting on that support line (of the 65-week moving average).  At the same time, the relative strength line, which still has an upward tilt, is also close to heading south.

If my optimistic dreams come true, then we will see this "Fear Index" start heading in the other direction.  It hasn't yet though, has it?  Is it waiting on some message from Europe or the economic outlook here at home or from other developments in the world...?

We'll just have to wait and see.

Don Hays

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