There is no denying that gold is in a downtrend that has shown no signs of slowing, today another strong hint at gold moving lower still just came up on the charts.
On Monday May 11th gold’s 50-day moving average moved below its 100-day moving average forming what market technicians call a bearish cross. This occurs whenever a shorter-term average falls beneath a longer-term average. Since that bear cross gold has lost $736 or 15.48% in value in the 50 days since the cross occurred. Since then, the space between the 50 and 100-day moving averages has been widening highlighting that the downside pressure has been growing. Today we got a similar bearish technical indication one that is more widely used and therefore will undoubtedly garner more attention from traders, a death cross.
A death cross is the strongest and most widely recognized of all the bearish crosses and occurs when the 50-day moving average falls beneath the 200-day moving average. To put this into perspective the last time gold had experienced a death cross was in early October of 2023, when gold was trading around $1,900. In that instance gold found momentum to the upside shortly after and the death cross was reversed a few months later leading up to gold’s greatest rally in years.
In that event gold was behaving much different than it is today, but the previous death cross that took place in July of 2022 had a very similar set up to what we are seeing now. Gold had just come off multi-year highs above $2,000 and fallen to around $1,800. When the death cross occurred, gold came under much more severe selling pressure and tumbled 8% in just sixteen days, ultimately falling 12% from the death cross before recovering at the start of November 2022.
Ultimately looking back at gold over the past 20-years there exists two distinct forms of death crosses. The first is a non-event death cross where the cross is reversed shortly after forming, this type is seen when gold is trading sideways for a long period of time and can be disregarded as a sell signal as the gap between the two averages never grows to a meaningful size. The second type is what we must pay close attention to; it occurs after gold has made a very substantial run usually to multi-year highs and doing so in a rather short time frame. A good example occurred in February of 2013 after gold had made a new record high a few years prior and despite coming sharply off of those highs was still at a relatively elevated price historically, this death cross occurred during a downtrend and after the cross the gap between the averages widened substantially. In this event gold would lose an additional 25% of its value at the low reached 126 days after the death cross formed and the cross would not be reversed until March of 2014.
The current death cross certainly appears to be the second more severe type seeing as it has been in a downtrend and is still in one, rather than sideways action. As such, this death cross could easily be signaling not only a further decline in gold but a faster fall as well.
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