Fools' gold ?

Over the past few months, there have been many 'experts' advising us how we should 'invest' in gold because they feel the whole global's economy is crumbling and paper currencies will all become banana notes. One such 'expert' even predict that gold would hit 2,500. (sound familiar ? remember another 'expert' predicted crude oi would hit 2,000 ?)

So many people has been under their influence and try to act accordingly. Recently we even have a few banks launching their gold funds and their marketing officers would just try to stuff those products to their ignorant customers' throat.

Of course as a technical analysis student, i would rather look at the gold charts and try my best to form an educated conclusion on which direction would gold takes next. But even before doing that, I already feel something is very strange as taking gold as a risk and inflationary hedging vehicle. My mother, like many women of her era (she was 89 when she passed away last year) used to "invest'" in gold bullion coins and she faithfully kept all her investment in her bank deposit box. So after her passing, I took out all her gold coins and asked the goldsmiths and bankers (which issued some of them) and asked for a quotation. I assure you that you do not want to know of their current days valuations. All I can tell you is :- they are NOT a hedge against inflation/ they are NOT great investment tools etc. In fact they are losses, ringgit to ringgit. That would be the kisah benar fundamental side of this much believed myth.

Now lets us examine the gold charts in order to see whether all those "experts" are correct in advising you to put your hard earned money into gold. First I shall look at the weekly chart and immediately I notice there is (1) a double tops chart formation (2 circled areas). A double tops formation is usually a major bearish formation which when a breakdown when occur, will usually go a great distance down. And to add more evidence that gold may be going into an extreme bearish phase is its (2) MACD which is forming a lower peak from its last peak. This is a classical bearish divergence sign. I would rate this double tops as a class 2 as oppose to a higher highs bearish divergence as a class 1 type. Nevertheless it is still a highly rewarding kind if you decide to enter a shorts position.

Next you would note (3) the Stochastic has already crossed down from its 80 signal line. If it ever crosses down its 50 signal line , we may see an even more intense selling emerging. (4) The D+ has also crossed below the D- which has now offered another sell signal. By following its inventor Wells Wilder's extreme entry trading rule, if next week prices go below this week's low, then the sell signal would be in effect.
(5) Last week's price has already closed below the 20 moving average which is usually a realiable support, hence another sell signal .I think the final line of defence would be its up sloping trendline which last price managed to bounce away from it. If next week price closes below this trendline, then we would have final sell signal.

BUT, as the ADX has now fallen below its 20 signal line, I would think this market would range bound for a while and even a few false breakouts before we can see its next major move. The downside move, if materialises, may see gold go to 500.00

At present, I am concerned about the weekly ADX because in the daily chart I am NOT getting all the major bearish signs yet. The rising daily ADX may conirm the current down move but there is no bearish divergence as prices recently have not formed any higher highs or double tops.

My conclusion would be: I am selling this market now and I do not think the 'experts' are correct with their views as at now. But if gold is to break up above its recent high, then maybe then it would warrent to take another reading of this chart.