Before You Give Up on Gold, Take a Look at This…

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And below, continue reading for Clint Brewer’s latest analysis on gold…

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Over the weekend, the global banking crisis claimed Credit Suisse as another victim.

And that came on the heels of the second and third largest bank failures in U.S. history just over a week ago.

But not everything is going down. Gold prices are getting a boost as investors pile into “safe haven” assets.

Yet despite its appeal during times of uncertainty, some investors are doubting gold’s luster. That’s because even with the pandemic, war, and inflation, gold prices are still trading around the same levels as three years ago.

Although it’s tempting to dismiss gold’s recent rally as just another head fake, you should look closer. There are emerging signs that the recent rise in gold prices is the real deal…

How to Track Momentum

Since the summer of 2020, gold prices haven’t been able to break out above $2,000 per ounce on the upside.

But if you’re trying to time a breakout, you need to have long-term momentum on your side. Momentum tracks the rate of change in price, and there are several tools to help you measure it.

I prefer a gauge called the Moving Average Convergence/Divergence, or MACD. The name is a mouthful, but the calculation is simple and delivers insights about the state of a trend.

The MACD is just the difference between a short- and long-term moving average (MA). A signal line is then applied to MACD to indicate changes in trend.

The MACD can also be above or below a “zero line.” When it’s above, that means the shorter-term moving average is above the longer one. And vice versa when the MACD is below zero.

Another way I use this metric is to look for trends that have run too far or are just getting started. A MACD that’s far above zero tells me a trend has run too far, like a stretched rubber band getting ready to snap back.

But when the MACD resets at the zero line, that’s a signal that a new trend is underway. Here’s an important signal the MACD is now flashing for gold prices…

MACD Can Support a Breakout

You can look at the MACD indicator across various timeframes, not just on a daily chart. So, I also incorporate monthly charts to help see the big picture.

And this is where things get interesting with gold prices. Take a look at the monthly chart below…

The top panel shows gold prices going back to 10 years. Again, this is a monthly chart where each bar represents the open, close, high, and low for an entire month.

Notice how gold prices peaked in August 2020 at point 1 and haven’t been able to move higher since.

Next, look at the MACD’s position at point A. The rally into 2020 was stretched too far to the upside, and gold prices have been consolidating ever since.

But now look at what’s happening at point 2. Gold prices are once again attacking the $2,000 per ounce level.

However, the MACD at point B is in a much better position to support an upside move. The indicator is just starting to turn higher from the zero line, along with a cross above the red signal line.

Despite the current market volatility and turbulence, it’s now looking like gold’s time to shine. The chances of a successful breakout are higher this time, with long-term momentum becoming a tailwind.

If the monthly bar chart confirms a close above the $2,000 level, the yellow metal will likely rise to new all-time highs.

Best regards,

Clint Brewer
Analyst, Market Minute

What are your predictions for gold in 2023?

Let us know your thoughts – and any questions you have – at [email protected].