Let us go straight to the key message. The long term gold chart is flashing a “buy” signal based on the technical indicator “MACD.” The chart below says it all. Mind that this is a monthly chart, which means it looks at gold from a long term perspective. This chart is courtesy of Dominic Frisby, author of Life After The State and Bitcoin: the Future of Money, and it appeared on MoneyWeek.com.
The MACD is the trend indicator which is displayed in the bottom half of the chart. It is a technical signal which measures momentum. It is useful in combination with a signal line crossover: when the MACD line (in blue) crosses the signal line (in red), it means upside momentum is increasing. A bullish crossover occurs when the MACD turns up and crosses above the signal line.
Dominic Frisby has looked into signal line crossovers on the MACD indicator since the last 10 years, as evidenced by the red and green arrows on the chart. The red arrows represent sell signals while the green arrows represent buy signals.
- The bullish signal line crossovers, indicated with the green arrow, occured in late 2005, mid-2007, mid-2009, as well as now.
- The bearish signal line crossovers, indicated with the red arrow, occured in 2007, 2008 and in early 2012.
The chart shows that those signals have been quite accurate in the last 10 years. Only the bearish signal in 2007 did not really result in a meaningful correction. On the other hand, the bullish signals marked the start of a strong uptrend.
So far, we have had 3 bullish signals in the last 10 years, and so the current one is the fourth one. Whether this means that gold is up and away, as of the coming days/weeks, is very doubtful given the sharp correction of the last 3+ years. Also, it is a long term signal (monthly chart), so it could be that the gold price will continue a sideways or even bearish path in the coming weeks and months before starting a meaningful rally.
Mind that this signal can also be invalidated in the coming months. If the price starts falling, we will see a bearish crossover.
Everything is possible. One technical indicator is not sufficient as a reliable confirmation. But it surely is a very healthy sign from a chart perspective, and it increases the odds of better times to come for gold bulls.