Gold’s Brush with the Death Cross

Michael Teague |

gold pricesOn Wednesday, gold’s 50-day moving average fell below its 200-day moving average, leading many to speak of traversing what is called a “death cross”. The cryptic phrase is used by technical analysts to describe a scenario in which the short-term moving average of a given security falls below that of its long-term moving average, which is typically a sign that a rapid decline in prices and subsequent bear-market are on the horizon. Once a death cross is reached, a security’s long-term moving average becomes the new ceiling against which it will have to push when its price returns to an upward trajectory.

The closing price of gold today, $1562.50, represents a decline of slightly over 5 percent for the last five days, prompting the term “death cross” to be thrown about liberally. The decline is attributed to the recent, if cautious, rebound in the markets, which usually draws investors away from safer securities (like gold) back to riskier ones with the potential for higher turnarounds. Furthermore, China was expected to step in after the end of the Lunar New Year last week and buy enough of the physical commodity to put a floor under selling, but has not yet made any significant moves in this direction.

Additionally, there is much nail-biting over the prospect that the Federal Open Market Committee’s minutes, which are to be released Wednesday, will announce a slow-down or tightening of quantitative easing as well as asset-buying policies before the end of the year.

However, it should be remembered that a true death cross only occurs when both short and longer-term moving averages cross when both of them are already on a downward path, which is not quite the case in this instance. Furthermore, gold’s current situation differs little from that of the commodities sector as a whole at the moment, aside from crude oil. For its part, the SPDR Gold Shares (GLD) is down 2.5 percent on the day to close at $151.44.

DISCLOSURE: The views and opinions expressed in this article are those of the authors, and do not represent the views of equities.com. Readers should not consider statements made by the author as formal recommendations and should consult their financial advisor before making any investment decisions. To read our full disclosure, please go to: http://www.equities.com/disclaimer

Companies

Symbol Name Price Change % Volume
MP.P.D Mississippi Power Company 5.25 Srs Pfd 26.07 0.00 0.00 50

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