Yesterday, gold hit the “death cross” – an indicator used by technical analysts that triggers a trading signal when the 50-day average gold price crosses below the 200-day average.
The chart below (click to enlarge) shows what it looks like. The light blue line is the 50-day moving average and the purple line is the 200-day moving average. Yesterday, they crossed.
The last time gold hit the “death cross” – in April 2012 – gold fell 9.1 per cent over the next month before rebounding.
The previous “death cross” – which you have to go back to September 2008 to find – resulted in an 18 per cent drop over the next 8 weeks before turning around and heading higher.
However, if you look at the last 22 times gold hit the “death cross” in aggregate, the picture changes quite a bit.
Here is what Detrick found: the “death cross” – at least when it comes to gold – is a bit of a false indicator.
On average, gold has actually posted positive returns over 1-, 2-, 3-, and 6-month timeframes after hitting the “death cross.”
Photo: Ryan Detrick
The “golden cross” – a bullish trading signal generated when the 50-day moving average rises above the 200-day moving average – is actually a less successful predictor of positive gold returns, as the tables above show.