Gold News: Is a Death Cross Imminent?

Chartists are finally noticing that SMAs for gold have been forming so-called death crosses for a few weeks now. Naturally, this is disturbing gold news for many. Here is the one this Gold Enthusiast noticed back in mid-May. 

(credit Fidelity.com)

A death cross is when a shorter-timed SMA (Simple Moving Average) line cuts down through a longer-term SMA, in this case a 20 day SMA vs a 200 day SMA.  As you would expect, everyone seems to have their favorite formula for the timings of these things. More recently the 100 day SMA fell through the 200 day SMA.  And still the world didn’t end, gold just cheaper. For a while at least.

The problem with SMAs is that they’re not always great predictors.  You can see on the 1-year chart of GLD above that the 20 day SMA dropped down to the 200 day SMA 3 times over the past year, with only the most recent one producing a reliable signal.  That’s just a 33% success rate. You have to have a good risk-reward trade on offer to make money with those kinds of odds, which is why this Gold Enthusiast didn’t go short big time in mid-May.  Gold trades just haven’t shown good trading parameters lately.

But this last one would have made a nice trade for sure. Congrats to anyone who shorted gold or miners recently. But you might not want to hang around in such a trade for very long.

Take a look at the RSI included at the bottom.  That’s saying gold may be oversold big time right now.  So if the US Dollar shows any sign of weakness, it’s a good time to look around for good risk-reward trades and take a small position.

That always seems to be the key for success.  Success doesn’t come from just one indicator, you’ll usually find it in a small collection of indicators that together mean much more.

Signed, The Gold Enthusiast

DISCLAIMER: The author holds no position in any mentioned security.  The author is long NUGT, JNUG, and a handful of small mining stocks, and may trade or option these positions over the next 48 hours.

 Related: When Will Gold Prices Bottom Out? 

About the author

Mike Hammer

Mike Hammer has had a wide-ranging career, with trading and investing as a continuing theme. Mike graduated from UC Berkeley with a business degree, then worked with Macy's in their operations arm. He left Macy's and spent a summer trading his own account, which taught him a lot about trading in general and markets in particular. Trading through the Black Monday and the Crash of 1987 showed him how most people are unprepared for upheavals in their trading. He then joined Waddell & Reed as a financial advisor, helping regular people understand their finances and meet their life goals.

Then came the usual story - Mike met and married the lady of his dreams. They moved to upstate New York, where Mike worked first for a small manufacturing consulting company, then Cornell University. While loving the work and the higher-education atmosphere, Mike missed the world of finance. Eventually, he signed up for stock trading coaching with the Adam Mesh Trading Group, to learn from people who understood modern markets. Within a year, Adam asked Mike to become a stock trading coach.

Since then, Mike has trained over 200 individuals, spoke at several national conventions, and is a frequent contributor to conference calls across the Adam Mesh community. Mike writes The Gold Enthusiast daily newsletter, runs the Golden Hammer trading service, and participates in the Mesh Private Portfolio. He also keeps a position in international education which keep him in touch with "the student mindset". Mike closely follows the gold, energy, and financial sectors. His motto is "Plan your trade, then trade your plan!"

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