Fools' gold ?

For some strange reason I notice that many financial market "experts" seem to have fallen in love with gold. As can expected from people who are in love, they tend to be blinded by their object of affection regardless how glaring their weaknesses are. During the current global financial crisis, it seems more and more of them are calling the unsuspecting investing public to share their bject of desire. Another argument given by them is that all the paper currencies are fast turning into Zimbabwe notes (latest model is 50 billions notes) and recently one of them even predicted that gold will hit 2,500. (sound familiar? remember another of them last predicted crude oil will hit 200?) And some local banks even launch their gold funds.

As a student of technical analysis on financial markets, I would go over the charts first before deciding to concur with them or not. I would first look at the weekly chart as they are the one that would tell us the "big picture". And they are telling me the following:-

1) the first thing that immediately come into my attention is a double tops chart formation as marked out by a horizontal line. A double tops formation is usually considered as an extreme bearish formation, upon confirming their breakdown, the distance going down will usually be sizable.

2) then the next item that jump in front of me is a bearish divergence found at the MACD that has formed a lower peaks while prices have form an almost equal highs. This kind of bearish divergence is usually considered as a class 2 type. A type 1 would be one with lower MACD peaks but prices doing a higher high. But nevertheless, this kind of bearish divergence is still extremely profitable if one is taking a short position.

3) the next item is prices have already closed below the 20 moving average (boxed area) .A 20 SMA is usually a reliable support or resistance line. In this case , prices remain below it constitute a bearish confirmation.

4) the Stochastic has already crossed down and go below the 80 signal line. Upon crossing down the 50 signal line would probably see more intense selling coming forth.

5) the D+ has also crossed below the D- which is giving us the first sell signal if we follow Wells Wilder's trading rule (Wilder invented this indicator) So by the coming week and if price goes below last week's low, then it would meet his extreme rule trading confirmation for a confirmed sell.

The only item that I do not like about this chart is the falling ADX which is telling me that the trend may NOT be in yet. I would like to see the ADX rise before saying that gold is heading for a major tumbling.This low weekly ADX most probably is contributing to the unconfirming daily chart as there is NO bearish divergence found. So I would expect gold to go one more trip upside, probably hitting the recent high again or even touch a new high before the next new direction is found.

So my conclusion on gold is:- unless in the near future gold can go to a new high and STAY there and beyond (thus erasing all the bearish divergences and the double tops formation), I WILL NOT buy/invest in this commodity even you point a gun at my head .

I also wish to share a kisah benar type of story with you on my mother's experience on "investing' in gold. My late mother was like many of the womenfolk of her era who deeply believe that buying gold as the ultimate investment. So during her younger days, she bought in many gold coins issued by the local banks and she also bought some gold chains, rings and other ornamental items for her 'investment'. When she passed away 2 years ago, I took out all her gold investment items and get some quotations from banks and goldsmiths trying to switch them over to other type of investment vehicles. Even without taking into consideration of inflations and opportunity cost, their quotations are near heartbreak levels. So be smart, do NOT buy physical gold unless you are thinking of becoming a boat people and you need them to buy your way to freedom .