Why Gold Remains Bearish | The Mindful Investor

Gold has captivated human beings for millennia, infatuated with its look and it shortage. Gold has additionally attracted traders for its worth in hedging inflation and offering a secure retailer of wealth during times of uncertainty.

Whereas there are a lot of narratives for gold associated to transitory inflation, the Fed’s accommodative insurance policies and its worth as a secure haven, at this time we’ll focus purely on the technical image. To place it merely, why does gold stay in a bearish mode, and what would we have to see to rotate to a extra bullish outlook?

The bear case begins with the transferring averages. Right here, we’ve a chart of the gold ETF (GLD) and the 200-day transferring common is in pink.

Discover how the 200-day transferring common sloped greater for the primary six months, then sloped decrease by the following six months? Shifting averages are designed to clean out the noise of the day-to-day worth actions. While you clean out the noise on the GLD, you may see a transparent rotation from bullish development to bearish development.

Subsequent, discover how the value is presently beneath two downward-sloping transferring averages. If you happen to drop a listing of tickers into the CandleGlance function on StockCharts, you should utilize the value and two transferring averages on every chart to simply separate the main charts from the lagging charts. GLD is clearly on the lagging record.

Talking of lagging, the panel on the backside exhibits the relative power of GLD to the S&P 500 ETF (SPY). The relative line has been trending downwards for over a yr, demonstrating how traders have probably not benefited from proudly owning gold over shares.

Our second chart brings in three further information factors: RSI, Fibonacci retracements and trendlines.

Right here, we are able to see again to the March 2020 low, the place gold and the S&P 500 bottomed out in the identical month. Over the following 5 months, the GLD rallied from a low round 136 to a peak proper round 194. From there, it has been a sluggish and regular decline.

I’ve drawn a collection of trendlines together with August 2020-November 2020 and June 2021-August 2021. What do all the trendlines drawn utilizing vital highs over the past two years have in widespread? They ended with a failed breakout.

Trendlines are drawn to trace the tempo of a development and, when the value breaks by the trendline, that ought to point out a development reversal. Within the case of gold, the value has been punctuated by a collection of failed breakouts, the place the value was unable to carry above the breakout stage. A chart the place worth is unable to breakout and follow-through to the upside is a chart in distribution mode.

Now let’s take a look at Fibonacci retracements. If you happen to take the March 2020 low and the August 2020 peak, 172 could be a couple of 38.2 retracement between these two extremes. If you happen to as an alternative use the August 2020 excessive and the March 2021 low, 38.2% of the way in which again up would offer you simply above 171. So 171-172 appears to be an necessary worth stage given the value extremes over the past two years. Discover how the peaks in Could, July, August and September of this yr have all been in that vary, indicated with a pink shaded space on the chart. So whereas the value relationships is sensible primarily based on Fibonacci retracements, the true problem for GLD is the failure to interrupt above that stage in September. Till the value can attain above 172.50, confirming a break above Fibonacci and worth resistance, the chart stays in a bearish section.

Lastly, we’ve the RSI on the very backside of the chart. Because the worth peak round 179 in June, the RSI has change into oversold throughout down thrusts and has didn’t get above the 60 stage on upswings. In bearish market phases, the RSI tends to be unable to get above the 60 stage as the complete RSI vary strikes decrease. Till the RSI breaks above 60, this momentum indicator is confirming a bearish section for gold.

So what wouldn’t it take to show this bearish evaluation extra bullish? As at all times, I discover a guidelines to be a easy option to lay out the steps and observe if and when they’re triggered. So right here goes:

1. GLD makes a better low.

We could also be forming the correct shoulder of an inverted head-and-shoulder sample and the present downswing must finish above the 161 stage. That might point out an inflow of shopping for energy and doubtlessly propel gold to new swing highs.

2. Worth will get above 172 and stays there.

Charles Dow tells us {that a} downtrend is a sample of decrease lows and decrease highs. By breaking above 172, the GLD would break that sample and exhibit that patrons are prepared push the value to new swing highs.

3. RSI reaches above 60 on an upswing.

So long as the RSI stays beneath 60, the momentum image will stay bearish. A rally in gold that pushes the RSI above 60 might point out a rotation to a extra bullish outlook.

There are numerous narratives, each bullish and bearish, associated to gold and its significance as an inflation hedge, as a secure haven, even simply as a retailer of worth. Ultimately, none of that issues! Worth will let you know most of what that you must find out about gold’s potential to outperform and its potential advantages to a well-rounded portfolio.

Need to digest this text in video format? Take a look at my YouTube channel!

RR#6,

Dave

P.S. Able to improve your funding course of? Take a look at my free course on behavioral investing!

David Keller, CMT

Chief Market Strategist

StockCharts.com

Disclaimer: This weblog is for academic functions solely and shouldn’t be construed as monetary recommendation. The concepts and methods ought to by no means be used with out first assessing your personal private and monetary scenario, or with out consulting a monetary skilled.

The creator does maintain a place in GLD on the time of publication. Any opinions expressed herein are solely these of the creator and don’t in any method symbolize the views or opinions of some other individual or entity.