Gold Looking Bearish Short-Term, Bullish for the Long Haul

Includes: GLD, GOLD
by: Simit Patel

Here's my quick analysis of the current situation on gold:

The daily chart shows the moving averages are getting set to crossover, but price action still looks bearish to me -- if I were shorting, I'd take a closer look at shorting gold at the upper trendline highlighted in the chart. GLD is also seeing volume divergence of late -- price rising, volume declining -- which is not a particularly good sign for gold bulls.

The weekly chart, which I have not included, is even more bearish; the volume situation tells a similar story (stronger volume on bearish days), and there is a more clear descending triangle in the works as well.

Fundamentally, the story is still the same; the global market is filled with debt issued by nation-states. Much of this debt simply cannot be paid off. As the sovereign debt bubble collapses, wealth will find its way to gold, and bubbles are fond of leading to panic exoduses, particularly when such exoduses are "unforseeable." From this perspective, I still favor gold as the ultimate in long-term, and larger portfolios that are better equipped to play defense against market unruliness will benefit from gold, in my opinion. As recent price action and volatilty have shown, though, gold has lured in a greater amount of speculators. Accordingly, my preferred strategy for trading gold is to wait for a bullish environment, and to buy on dips in such an environment. I will look for moving averages to turn more bullish, and then consider buying on dips.

Disclosure: No Position