GOLD Technical Analysis

Gold has largely been falling since its peak in March, and since mid-May it is hovering between a horizontal price channel. Since the start of August, it started ascending from the midpoint and is currently rallying at 1615. A rally till the upper level of the channel at 1631 is possible. MACD has been bullish since the past few weeks, but its lines are coming closer to converge, suggesting that a sell signal may be produced soon. Stochastic produced a buy signal at the start of August, but this was produced at 62, which makes it relatively undesirable. RSI is giving 
similar signals. 

In the weekly chart one can notice the upwards trend experienced till mid 2011, and a fluctuating reversal ever since. RSI has been hovering near 50, not producing any particular trend, which means some resistance at the current level is likely. Stochastic has been in a bullish mode since May, although the small rally currently experienced started only recently. MACD seems to be giving a buy signal and a sign of reversal, but this could easily be a false signal and should be treated with caution. 

Gold has to be taken very cautiously due to its recent year-long decline. When its price is observed on a century long inflation-adjusted chart, one can see its crash in the 1980s, which could also be experienced in the coming years. Buy and hold investors may not like gold as a stable investment for now.

Fundamental: ECB and Fed did not provide any new stimulus programmes, but the price of gold has still maintained above $1600 an ounce. It seems one minute the ECB is prepared to do whatever it takes to save the euro, and the next it fails to take any action.

In the US, the Fed has admitted that economic growth has slowed down. Disappointing news also came from China, where manufacturing dropped to 50.1 in July (PMI). In the UK, the PMI dropped more than expected from 48.4 to 45.4. If these problems are worsened, it is logical to keep one’s money invested in precious metals. However, if market sentiment is positive, one must be cautious towards gold.