Riding the Wave: Gold Price Forms Golden Cross Technical Chart Pattern
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The financial markets are a treasure trove of patterns and indicators that traders and analysts use to make informed decisions. One such notable occurrence is the formation of the ‘Golden Cross’ in the gold market – a technical chart pattern that often signals a significant shift in momentum and trend. In this article, we look into the conditions that bring about this chart pattern, and what it could mean for gold investors.
Understanding the Golden Cross
The Golden Cross is a bullish (positive) technical indicator formed when a short-term moving average crosses above a long-term moving average. In the context of the gold market, this typically involves the 50-day moving average (short term) crossing above the 200-day moving average (long term). This crossover is seen as a powerful signal by technical analysts, suggesting a potential upward trend in the gold price.
Historical Significance
Throughout the history of financial markets, the Golden Cross has proven to be a reliable indicator of positive sentiment. When applied to the gold market, this pattern has often heralded prolonged periods of progressive momentum and rising prices. Investors and traders keen on capitalising on upward trends closely watch for the formation of this golden cross, as it may present lucrative opportunities.
Current Scenario in the Gold Market
As of the final stages of 2023, the gold The US Federal Reserve have unanimously voted to keep US interest rates unchanged for the fourth meeting in a row. This was broadly anticipated by the market as a response to stubborn inflation figures – headline Consumer Price Index (CPI) inflation actually rose to 3.4% in December, counter to the Fed’s ambition to bring inflation down to 2%.
Gold dropped from a peak above $2,055 to almost $2,030 as markets digested comments from Fed Chair Jerome Powell that he doesn’t expect to see rate cuts at the next Fed meeting in March either. However, the gold price soon rebounded above $2,040 as analysts, investors and the financial media began speculating about large rate cuts sometime later this year.
In the UK the Bank of England’s Monetary Policy Committee also voted to keep interest rates unchanged at 5.25%, and UK CPI inflation is currently at 4% against the Bank’s target of 2%. Some public figures, including politician Sir David Davis and former government advisor Ben Ramanasuskas, had called for the Bank to cut interest rates to avoid a potential recession.
The anticipation of interest rate cuts could help support the gold price as lower interest rates help reduce the ‘opportunity cost’ of holding gold, making it a potentially more appealing safe haven for those seeking to protect their investment portfolios from the impact of rising geopolitical tensions or economic turmoil.
Price has formed this closely watched chart pattern, with the 50-day moving average crossing above the 200-day moving average in decisive fashion.[1] This event has sparked optimism amongst market participants, signalling a potential reversal in the bearish (negative) short-term trend that briefly took hold over the summer months.
Factors Contributing to the Golden Cross
Several factors may contribute to the formation of a Golden Cross in the gold market. Economic uncertainties, geopolitical tensions, inflation concerns and shifts in central bank policies are among the primary drivers that attract flows to the safe haven of gold.[2] When these factors align, they can set the stage for a Golden Cross, indicating a shift in market sentiment towards increased demand for the precious metal.
The current backdrop of heightened tensions in the Middle East, coupled with lower interest rate expectations, could set the scene for the gold price to finally move out of its range-bound trading, and onto new, higher highs.
Implications for Investors
For investors, the formation of a Golden Cross presents an opportunity to capitalise on potential gains. Suggesting a shift from bearish sentiment to bullish momentum, encouraging investors to consider long investment positions. However, it's crucial to exercise caution and complement technical (charting) analysis with a comprehensive understanding of fundamental factors influencing the gold market.
Conclusion
The formation of a Golden Cross in the gold market is an exciting development for traders and investors alike. Whilst past performance is not indicative of future results, historical data suggests that this technical chart pattern can signal a significant shift in trend and momentum. As the gold price continues its journey, market participants will closely monitor the implications of this Golden Cross, seeking to understand the strength of any move higher.
Could now be a good time to add gold to your investment portfolio? With a plethora of external political and economic factors prompting further uncertainty in the investment market, is there potential for the gold price to continue rising to above the US$2,100 mark (£1,654 at current exchange rate*) in the new financial year?[3]
References
[1] - https://www.lbma.org.uk/articles/lbma-precious-metals-market-report-q4-2023
[3] - https://www.royalmint.com/invest/bullion/discover-bullion/market-updates/2024-outlook/
Notes
The contents of this article are accurate at the time of publishing, are for general information purposes only, and do not constitute investment, legal, tax, or any other advice. Before making any investment or financial decision, you may wish to seek advice from your financial, legal, tax and/or accounting advisers.
*Exchange rate figures correct at time of publishing.
