Gold prices have more than doubled over the last two years, and yet we still hear daily TV/radio ads - "Buy gold!!! “It’s been the best investment for the past 10 years. The price of gold has more than tripled. " “Investment advisors even project gold could go to $4000 an ounce!” These ads strengthen their position by playing upon our fear of the current economic conditions being in a period of great uncertainty.
So, is it still time to Buy Gold?
Let’s see what the Candlestick Charts tell us. The current pattern on this weekly chart indicates prices may have topped out for a while.
Gold Weekly Chart
After reaching all-time highs in September, 2011 gold prices have moved back down between the 50-day moving average and the 200-day moving average. And, a very strong trend indicator has been breached, The T-line (the 8-day exponential moving average). The breach becomes even more compelling as it happened following a gap down from an all-time high.
The eight exponential moving average, is an extremely compelling trend indicator when applied to candlestick analysis charts. This simple Candlestick trading technique dramatically improves profitability. The T-line (8ema) provides buy confirmation when the signal closes above the 8-ema, and hold continuation until the signal closes below the 8-ema. As can be seen in the gold daily chart, the gap down from the highs started the prices to trade below the T-line and has predominantly been in a downtrend until the recent trading above the T-line.
There is very important information revealed by candlestick signals over the past two weeks. Although the trend has moved slightly positive and trading above the T line, the candlestick signals, the Doji's, reveal the bullish sentiment is very indecisive. This lack of bullish decisiveness creates a strong probability that the current slow uptrend is a prelude to more downside movement, probably the 200 day moving average being the viable target. The information built into individual candlestick signals allows an investor to anticipate what the next high probability price move will be.
Daily Gold Chart
Do not let the unsophisticated name "candlesticks" influence your opinion on the viability of candlestick analysis. It is derived from common sense investment perspectives put into a graphic depiction. Candlestick Rice traders made huge fortunes based upon one simple premise. Investor sentiment is usually wrong! Where do most people sell? They panic sell at the bottom. Where do most people buy? They buy exuberantly at the top.This reoccurring investment pattern can be seen in the gold market. Japanese Rice traders clearly illustrated that prices do not move based upon fundamentals. Prices move based upon the perception of fundamentals.
Gold prices move simply on what is occurring in investor fear and confidence. Candlestick signals are the cumulative knowledge of everybody buying and selling a specific trading entity during a specific time frame. No matter what the so-called 'experts' rhetoric is professing about gold prices, the candlestick charts tell you exactly what investor sentiment is doing. To ignore or disregard what the candlestick charts are revealing is trading against the probabilities.
The same rhetoric about gold prices occurred back in 1980 when gold prices spiked from $150 an ounce up to $800 an ounce in one week. The projection back then was that gold prices could go to $2000 an ounce. And the same compelling reasons were provided for why it was time to buy gold. However, within the next few weeks, gold prices fell back to $200 an ounce and remained at that level for the next 20 years.