Investments in Gold – Chapter 13: Technical Analysis

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Updated: Mar 5, 2019, 13:14 GMT+00:00

This is chapter number 13 out of 15. Read the rest: Read Investments in Gold – Chapter 1: Introduction Read Investments in Gold – Chapter 2: Advantages of

Investments in Gold – Chapter 13: Technical Analysis

This is chapter number 13 out of 15. Read the rest:

Investment in gold has always been regarded by the older generation as the foundation of “safety” for the next economic crisis since the last depression. It provides an emotional assurance that their investment in gold is a sort of security against the uncertainties of life. This perception of gold is also a testimonial that emotions play a big part in determining the price of gold. The allure of gold be, it fact or myth, had made many into millionaires and millionaires into paupers. Stories of gold rush in the wild west of theUSA, theYukonandAfricahad been the intrigue of many childhood bedtime stories.

As alluring as some of the old stories may be, today, the market for gold had grown more complicated and technical. In this chapter, we will study some of the tools that are used by investors to examine gold stocks. It has also been noted that there has been a relationship between the price of gold bullions and the companies that mined this much sought after metal. Therefore we will also study the price of gold and examine the AMEX Gold Bugs Index and the CBOE Gold Index to understand their implications on the price of gold.

Tools for Analyzing Gold

Investors wishing to examine the price of gold can use “Trend Determining” techniques like:

Price-Pattern behavior
Moving averages (MA)
Rates of change

With respect to long term fluctuations, critical crossovers of 12 months MA have proven to be dependable. For monthly buy and sell signals, investors can resort to using a monthly ‘Know Sure Thing’ (KST) which has also proven to be reliable as well.

The majority of investors have a preference of indirectly owning gold by buying stocks of reputable gold mining companies which had paid out generous dividends to the shareholders. For example, stocks in Newmont Mining Corporation Inc. (NEM-NYSE) between November 2000 and July 2002 had returned a gain of 150%. Similarly, stocks in Anglogold Limited Ads (AU-NYSE) during the same time has increased in value twofold.

Chartists on the other hand, before investing, will study the relationship of gold prices to gold shares through indices like the two above mentioned indices. This is because a mining concern might also have silver mines as part of their businesses that would distort the actual picture in shaping its relationship to gold. Furthermore, investors are also the “head of the pack” in determining and shaping share prices of gold producers. We hear of this very often in the news about investors driving shares prices up and than dumping the shares when the news of an event changes.

The universal tenet is that the existing trend isregarded as to be intact except when a new high or low in the stocks or bullion is not mutually confirmed. This will mean that there is a conflict and the current trend is highly expected to turn around. In most cases, bullion prices lag behind shares prices. However, share prices sometimes can be slow to adjust. Whichever is the case, it is to be expected that the trend is going to be reversed. Most technical analysts regard this rule to be fundamental and abide by it religiously.

Read Investments in Gold – Chapter 14: The Motivations for investing in Gold
Read Investments in Gold – Chapter 15: Conclusion

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Table of Contents

Intro

Intro