Chart: Is this a good time to buy gold?

The Gold price has been quite a bit in the last few weeks. under pressure due to rising interest rates. The price of the precious metal fell below $1,700 per troy ounce this week, the lowest level in dollars since June last year. This drop in prices is remarkable, because inflation expectations are also rising at the same time as interest rates are rising. That means that money is losing purchasing power and there is still a good reason to own precious metals like gold and silver. But is this also a good time to buy gold?

It is difficult to make a prediction about the Gold price, because the precious metal reacts to numerous factors. Nevertheless, it is interesting to study the price development of recent years, because certain trends can also be discovered there. We analysed the development of the gold price and the 200-day moving average since the beginning of 2014. These are the gold and blue lines in the graph below. As you can see, these lines are sometimes far apart, for example if the gold price rises or falls rapidly in a short period of time. In hindsight, these often turn out to be favorable times to buy or sell gold.

Gold price almost ten percent below 200-day average

Gold price versus 200-day average

The gray line shows how far the gold price deviates from the 200-day moving average at any given time. We have shown this in percentage terms in the right-hand axis on the graph. As you can see, the price is currently almost ten percent lower than the long-term average. Previous moments when the gold price was so far below the trend, such as in the summer of 2018, at the end of 2015 and at the end of 2016, turned out to be favourable moments to buy gold. Of course, the price may fall further, but based on this indicator, it seems to be becoming more and more attractive to get in.

Of course, past performance is no guarantee for the future. If we look further back in time, we see that this theory is not always true. In a downtrend, the price may show some recovery in the short term, but then fall further. That's why it's good to look at the fundamentals in addition to these types of technical indicators. And those fundamentals still look favorable for gold. For example, central banks still maintain a very loose monetary policy, while governments continue to increase public debt to support the economy. This will not be beneficial for the purchasing power of money in the long run.

Disclaimer: Holland Gold does not provide investment advice and this article should not be considered as such. Past performance is no guarantee of future results.

This contribution was made from Geotrendlines