Namely, for the first time since the beginning of 2013, the 200-day simple moving average has been going up (green arrow). My readers know that I am not a fan of the classic technical analysis (where moving averages are applied) but the up trending long term moving average is a sign for trend followers to consider an investment.
Another technical indication - as the chart shows, the 50-day moving average is currently above the 200-day one, which is also a bullish sign (especially for hedge funds investing in gold) but, in my opinion, it is not a reliable indicator. So, let me ignore it.
Another point. The chart below shows my gold sentiment index, constructed on the COT Report data:
source: Simple Digressions and COT Reports
As the chart shows, there is huge optimism (the index reading standing at 100%, which means everybody is optimistic on gold in the short-term). This indication may by read in two ways:
- due to huge optimism the prices of gold should go down significantly
- if gold is currently in its bullish phase once again, the current high reading should be ignored (and gold should be accumulated).
The first alternative is supported by the bearish pattern - if somebody believes that gold is still in its bear market phase, short positions should be initiated now.
The second alternative is supported by the bullish patterns. As the chart shows, during a bull market phase (for example between 2009 and 2011) the indicator was showing high readings all the time. When the indicator was around 100% (over-optimism) there were only minor corrections - as a rule, the only right strategy was to hold gold.
So, the one million dollars question is: "Is gold in its bull market phase or it is still in a bear market?"
In my opinion, if gold starts another leg up soon, the second alternative should be regarded.