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Technicals and Fundamentals Point to Higher Gold Prices – Buy SPDR Gold Shares (GLD)

Jan. 30, 2011 11:13 PM ETGLD
Michael Bryant profile picture
Michael Bryant's Blog
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Gold has been on a seven-year bull run, backed by the recession, falling dollar, demand from China, and buying from central banks around the world.  It is predicted that the gold run will end at about $1700 sometime in mid-2011, when central banks are projected to start raising interest rates. http://www.resourceinvestor.com/News/2010/10/Pages/Gold-is-Far-From-Topping--Its-Just-Getting-Started.aspx  I think it will take more than interest rates to stop the rise of gold.  Central banks are still going to buy gold to back their own currency.  There is talk about bringing back the gold standard.  Plus demand from China is not going to go away anytime soon.  The Chinese economy is not going to burst.  But even if it does burst, that will just accelerate gold buying from the world’s fastest growing economy.


Further, unrest in the world may cause stock markets to plunge and gold to rise.  There have been massive protests in Tunisia, Egypt, and Algeria.  Plus, the ongoing debt crisis in Europe will keep a bottom resistance on gold.


But even if gold does stop at $1700, now seems like a good time to get in.  Take advantage of any weakness on gold.  Everybody is saying that gold is going to plunge and is overvalued.  I think not, and the technicals of SPDR Gold Shares (GLD) says now is the best time to buy.  “Be greedy when others are fearful,” as Warren Buffet always said.


Source:  Yahoo Finance


Top black line in each graph is overbought territory and the bottom black line is oversold territory.


Though the technicals are not perfectly accurate all the time, they did show a bullish cross of the %K and the %D around July 30th, as shown by the red circle.  This corresponded with a bullish buy signal in the W%R, also shown by a red circle.  One can see that these signals showed up just before the stock price started another near-linear upslope.  The MFI and RSI were also near or at oversold territory.


Recently, the %K and %D showed another bullish cross.  The W%R is at its lowest (or highest) point of the year, a very bullish signal.  Further, the MFI and RSI are near oversold territory.  In fact, the RSI just crossed back above the 30 line.  All these signals say, “Buy, Buy, Buy!”

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

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