When news of gold’s new all-time high broke on December 1, 2023, it carried a special significance for me. Not just because I work in the precious metals industry—like millions of other Americans, I also keep a portion of my portfolio allocated to physical gold.
Naturally, gold’s recent rally has earned a lot of news coverage, but a specific story about gold prices sending a technical signal for further growth caught my attention. But the “golden cross” may not be as big a deal as it’s made out to be.
Gold prices have formed a “golden cross.”
The “golden cross” is a technical signal that happens when a short-term average price for an asset rises above the 200-day moving average of the same asset—a movement that has historically preceded rallies. Some think this movement may represent a sharp ramp-up in purchases of the asset and therefore indicates bullish momentum.
This phenomenon occurred for gold futures—futures, not spot prices—on December 5, 2023, when the 50-day moving average price for gold futures surpassed its 200-day moving average price. While this looks good for gold—and there are many reasons to trust in gold’s growth potential—we should consider one important caveat regarding the “golden cross.”
Technical signals may not always be reliable.
The problem with relying on technical signals is that they cannot guarantee future price performance. Yes, there are historic instances of these signals proceeding rallies, but that hasn’t always been the case—and depending on the asset, the recurrence of such technical signals coupled with price rises throughout history could be a coincidence.
U.S. Money Reserve President Philip N. Diehl, who also served as the 35th Director of the U.S. Mint, voiced skepticism regarding the golden cross when I asked his opinion on the topic. “To the extent that ‘it works’ as a forecasting tool, it’s because some people follow it and act on it,” he said.
Brad Chastain, our Director of Education, is also skeptical, but says that these technical signals—what he calls “technicals”—could reflect growing positive sentiment toward gold: “Sentiment is starting to reflect fundamentals. That’s the most useful [way to utilize] technicals in my opinion. Something that is strong fundamentally can be out of favor for quite a while and takes a while to benefit from you being ‘right,’ and you have to wait for sentiment to agree, which it eventually will.”
The fundamentals for gold continue to provide long-term support for increased prices.
The fundamentals of the gold market—and not technical signals like the golden cross—are reason enough to get excited about gold. Even if the support behind the golden cross is shaky, the factors supporting gold’s growth are very solid. Central banks across the planet are still buying record amounts of gold, geopolitical tensions are still providing the need for a hedge, the federal debt of the United States is still rising (perhaps uncontrollably), and the policy of the Federal Reserve still looks like it will be very accommodating to gold prices. That is why I believe we’ve witnessed new record highs this month and why I believe gold continues to have a very bright future.
