August 2012 – Is a Gold Rally Gearing Up?
Hello again Goldbugs. Slowly but surely the tide is changing for gold. After drifting listlessly in the ‘Doldrums’ for weeks on end much like the un-powered sailing ships of olden times used to, the price of gold has made a small but significant movement in the past few days. For the first time in almost 5 months, gold actually bounced off of its 50 Day Moving Average line. By this I mean that having crossed above the 50 DMA just over a week ago, and then falling back towards it last week, rather than descending below it, gold bounced back up. This pattern has been seen a few times over the last 5 months as the chart below shows but on all those occasions, the gold price descended back down below the 50 DMA i.e. it did not bounce. If this behaviour holds into next week and continues over the coming weeks, then the 50 DMA will start to rise again and that is good news. It may also please you to know that on the weekly chart, Gold’s Weekly 100 Moving Average trendline I wrote about a few weeks ago is also holding. In a nutshell, the $1600 region is looking like a major low in this market and one that will soon be left behind for good!
In one of his latest commentaries, Jeb Handwerger of goldstocktrades.com writes that “It is not the first time that gold has had a number of drops from its long range upward trajectory. Undoubtedly, investors may question the fall from grace this year of gold and silver which saw highs of $1900 on gold and $50 on silver in 2011. Now they are trading near the lower parts of its yearly range.
Characteristically these metals have always been volatile and subject to breathtaking moves both upward and downward as they revert to their means. Do not forget the long term trend is moving higher and we must use this volatility to our advantage, rather than letting the irrational logic of the crowd divert us from our course.
There are enough reasons to explain these mercurial moves. Bernanke’s reluctance to openly inject the markets with the benefits of quantitative easing in 2011, since the expiration of QE2 in April has knocked the wind out of most markets including precious metals.”