Dave from Denver…

myth vs. reality:

Gold vs. The 200 Day Moving Average

Let's set the record straight. I really didn't want to spend time on a post today but I've been inundated with a lot of really reckless, ignorant research over the past few days about the "technicals" of the gold market. Lately there's been many many blogs and research reports which make the claim that once gold breaches its 200 dma to the downside, the party is over. But let's look at the 10-year track record of gold vs. its 200 dma, after all there's nothing like showing the hard data in all of its glorious golden truth:

That chart pretty much speaks for itself. Gold has breached its 200 dma to the downside many times over the last 10 years. Ironically, once that has occurred - in each and every occurrence - gold has always resumed its bull trend and powered to new nominal record highs. That evidence is indisputable. Any research that forecasts bad news for gold based on it breaking its 200 dma is unequivocally incorrect and therefore useless to the goal of making money and preserving wealth in the precious metals market. Unequivocally.

Let me repost the rGold metric chart, which shows the daily price of gold relative to its 200 dma. Whenever this metric has gone below 1, which means that the price of gold is below its 200 dma, it has signalled a table-pounding - unequivocal - "buy" signal. Here's the chart, which unfortunately ends in 2008 and I don't have the time right now make it current, but you'll get the picture:

Currently the rGold metric is around .94. That is super-bullish for gold.

Any questions? Any research on the gold market that is worth spending time on will instead focus on analyzing the fundamentals which are unpinning this ongoing historic bull market in gold. Is there any indication that Governments are reigning in spending and debt issuance and fixing their financial markets and economies anywhere in the world? As point of reference, let me just reiterate that the U.S. Government is on track to issue close $2 trillion in new debt this year. The only way this will get funded, barring some Moses-parting-the-Dead-Sea event - is for the Fed to fund that new debt issuance using the printing press. That is uber-bullish for gold. Similarly, real interest rates are negative by a record amount here and globally. That is rocket fuel for gold.

And the best short-term indicator for gold is the current sentiment. The investment sentiment for gold right now is at the low end of its range over the last 10 years: LINK Again, this indicator has always marked a turning point in the direction of gold. I expect it will this time as well. Furthermore, the Indians and Chinese have been out of the market for the past couple of weeks, but per that linked report, they are starting to buy again. One more thing. On Friday the COT report showed that hedge funds are record short the euro. The big bullion banks are taking the other side of this trade, which means they are very long the euro. Would you bet on the hedge funds or the banks, who have inside info? I would suggest that this is one of the reasons that JP Morgan and HSBC have been working hard to reduce their short positions in the gold and silver futures market. I would further suggest - although don't expect gold to all of a sudden rebound straight up - that all of the technical and fundamental indicators are pointing toward the genesis of gold's next big move higher.

All bull markets end when with a massive parabolic blow-out to the upside in which almost everyone has thrown their money into the market. Currently less than 10% of ALL institutional and retail investors will even consider investing in gold, especially gold of the physical variety. I rest my case.