False Gold Trading Signals: Market Timing Gold and the GLD ETF
Is Gold REALLY Strong or REALLY Weak Or Are We Looking at a False Gold Trading Signal?
This is just one example that will make the point whether gold is up or down today. For example, WHY CAN GOLD LOOK FINE in dollar terms at times, WHILE THE WORLD IS ACTUALLY SELLING GOLD? How can that be? And how can we avoid false gold trading signals?
Market timing gold cannot be done without understanding this TIP. You need to know this if you intend to use market timing to enter and exit the gold market at sensible points.
We will use 8-26-10 am pricing just as an example, but you can use this TIP at any time.
The move in the gold price can be broken down into two components for those who normally buy gold with US Dollars. Kitco.com gives this critical market timing data at no charge.
The gold price is determined by:
1. The change in the value of the US dollar
2. The extent of BUYING vs. SELLING of gold itself worldwide.
That means if US dollars are being SOLD, the gold price will increase today.
So for example, today gold was UP $7.70 due to DOLLAR WEAKNESS ALONE.
But it happens that today the world is SELLING GOLD, not buying it, so gold is DOWN $9.30 due to ACTUAL GOLD SELLING.
The NET price move must be calculated is +7.70 due to dollar weakness AND -$9.30 due to gold selling SO GOLD IS down only $1.60 in this example.
The BEST time to invest in gold is when gold is going up because GOLD IS BEING BOUGHT AROUND THE WORLD. This gives you a solid gold trading signal if the trend is up of course. If the dollar adds a boost by going down, that can help, but a much more sustainable rise in gold prices requires that there be TRUE BUYING OF GOLD such as occurred after the low of 251.70 in 1999.
CONCLUSION: The fact that GOLD is UP or DOWN a certain amount is NOT enough information to judge what GOLD will do longer term. To judge whether GOLD is actually BREAKING OUT OR BREAKING DOWN in a strong way you need to know if there is REAL GOLD BUYING AND NOT just DOLLAR WEAKNESS. Otherwise you will be subject to false gold trading signals.
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