The Trend

This Pattern Has Not Happened to Gold Since 2016

The last time this happened, gold sank from $1,306 to a low of about $1,125.

Nowadays, at the same price of $1,306, it’s happening yet again, and analysts are fearful it could pinpoint to further downside for the meal.

If you look closely at this chart, you’ll see what happened when the 50-day moving average crossed below the 200-day moving average in November 2016.  Nowadays, it’s happening again with a slight crossover today.

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In short, we’re seeing what technician refer to as a death cross, where the short-term trend crosses below the long-term moving average. Analysts believe that when this happens a long-term bullish trend starts morphing into a downtrend.

Many analyst also attribute the recent decline in gold prices to a strengthening dollar, as the Federal Reserve continues its push to raise interest rates, which is bullish for the dollar. But what’s puzzling is that gold’s decline comes amid heavy pressure in popular indices. 

Sometimes, the crossover may lead to a temporary decline, as we saw in early 2012. Other times as we saw with a death cross in early 2013 it can be downright bad. In fact, when the death showed its face in in 2013, gold sank from $1,700 to $1,050.

We can see a bearish cross in major indices, like the Dow Jones, too.

In fact, one appeared in 2008 during the subprime fiasco. On the crossover, the Dow sank from 14,000 to less than 7,000 in months.

It’s something to be well aware of.

Then of course, we have the golden cross, which is the opposite of the death cross. In this scenario, the short-term moving average (50-day) crosses above the long-term moving average (200-day). We can see that when the 50-day moved above the 200-day moving average, gold picked up momentum from $1,250 to $1,360 in 2016.

Again, we can see the same bullish set up with the Dow Jones.

In mid-2016, the 50-day jumped above the 200-day following declines to double bottom support just below 16,000. Notice what happened when the golden-cross appeared. The Dow rallied from 17,000 to more than 26,000.  In 2002, a golden-cross appeared after a decline, which eventually gave way to a rally from 8,000 to 14,000.

Again, these crossovers are something to keep an eye on.

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