Gold has been all the rage over the past few years as everybody has gotten in on the action to proclaim new highs and huge price targets. I can’t remember seeing a bearish forecast for the price of the yellow metal. I was perusing some charts and noticed that the chart of gold looks ominous for the bulls. Take a look and see for yourself.
Gold 1.6.11

Gold hasn’t made much headway in the past few months, and its recent dip to start the new year caused it to break below its 50-day moving average on heavy volume. The chart shown is that of the Gold ETF, symbol GLD. This is the first time the commodity has traded below the all-important 50-day moving average since mid-August.

Another red flag has been the down volume since October. Notice that the red bars are consistently higher than the green bars, indicating that selling has been more powerful than buying for the past two months. Volume and price are intertwined in technical analysis, so chartists paying attention must have noticed this divergence.

On a fundamental basis, gold has been given a boost by the weak dollar and the perception that the U.S. dollar will be worth nothing more than toilet paper as the Fed continues to flood the economy with newly-created money in order to juice up the economy under the guise of its QE2 program. However, the dollar has strengthened and many are calling for a further rally throughout the year. That could be a problem for the gold bugs out there.

Also, as the economy firms up, the panic “flight to safety†trade into gold might dry up as investors feel better about other assets. There isn’t too much support on the chart for the gold bulls and if the downside picks up steam, the 200-day moving average around $123.40 could come into play. (Just as a side note, the GLD is 1/10th the price of actual gold.)

Getting Technical: Don’t Let the Gold Bugs Bite is an article from: