Gold Price Update: 200 Daily Moving Average
For the past few years, using the 200 daily moving average (DMA) as a guide for good support in the price of gold has been very useful. Since the bull market in gold got going just after the new millennium rolled over, gold has back filled every step of the way. This most recent healthy correction will be no different. After reaching the £910 level we’re currently trading around £825 – more than a 9% pull back. But more importantly we’re now right up against the 200DMA.
When prices shot up at the start of 2009 to over £670 (yes, gold really was that ‘cheap’ some 2 short sweet years ago), the price then corrected by over 16% – but more importantly, it pulled back around its 200DMA, had a breather for a couple of months, then took a sling shot all the way to £850 – good for more than a 50% increase.
Then we saw about a 12% correction, back down to the £750 area – and once again meeting the 200DMA. However this time it didn’t hang around for long, and within a week it was on its way to taking out its all time highs and reaching over £910.
So the only real question is, are we in for a few months of consolidation around the 200DMA before making new highs like in ‘09, or is this a momentary meeting like in ‘10?
With Hoeing, a supposed inflation Hawk (if such a term can possibly exist if one is on the Federal Reserve Board), across the pond hinting that MP3 (Money Printing 3 – just sounds better than QE3) is on the cards, our very own Bank of England can’t be that far behind.
With Reuters reporting today that most expect the Old Lady to ignore inflation in their decision making, it would not be too surprising to see gold hang around its 200DMA only briefly.
Also, don’t forget that before Christmas Sir Gus O’Donnell, the Head of the UK Civil Service, trampled over any notion of central bank independence, when his ‘plan b’ memo was leaked. The very first option, should the UK experience a down turn (like the one we are presently), is “extend quantitate easing” – or as we like to call it round these parts, print more money.
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