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The Golden Cross

March 22, 2014

golden cross

If you have stumbled across this article in order to gain insights on religion or jewelry, I must disappoint you right away. In financial markets,  the golden cross represents a significant bullish formation in the underlying asset as the short-term(trend) 50 day moving average crosses the long-term 200 day moving average(trend) on the upside. Market professionals watch the action around such rare formations closely as they tend to confirm a starting or changing trend.

Given the rather quiet major markets globally, it may come as a surprise that the gold market of all would be the one providing this interesting chart pattern.



Recently, we have read stories that the gold market may actually have been manipulated for many years now. This revelation has caused numerous market participants to call foul play in the supposedly free financial markets that we live and operate in. While I personally agree about the superiority of a free market price mechanism over central planning it is a matter of fact that most markets are either fixed or manipulated by political entities. For example, the Federal Reserve sets short-term interest rates and openly dominates long-term rates in the US via QE.  This manipulation leads to an artificial valuation in the equity market which compares equities in terms of opportunity cost to bonds. Furthermore, President Reagan set up the “Working Group on Financial Markets” by executive order  in 1988 to make sure volatility in the stock market is subdued. Recently, we have also heard about large Libor and FX manipulations over the past decade and we all know about agricultural subsidies globally. Get used to it, the financial markets are all manipulated if not pegged(think Swiss Franc or Chinese Yuan) and so is the gold market.

Does it matter?

If you are a speculator on gold futures trading on margin rather than buying gold as an insurance for financial disaster, then yes, you are being hurt by the ongoing downward manipulation of the gold price. However, if you are a savvy investor in gold who owns physical bullion and respects the fact that the current gold price is artificially suppressed, you will cheer at the opportunity to acquire a true asset at a discount. In the end, manipulation never matters as market forces eventually take prices to where they ought to be. In terms of gold, remember that the price of an ounce of gold was $35 in 1971 when President Nixon “temporarily” suspended the gold fix to the dollar. Today, 43 years later, that same coin costs $1340, roughly 38 times as much, with or without manipulation. Most importantly, the average cost of mining gold is around $1250 an ounce right now and that level should act as a price floor(it has so far) for anyone interested in acquiring gold as an asset.  Finally, gold looks set to break into another bull market on the charts but if it doesn’t do so on Monday, Tuesday is another day and next month another month… Know why you own the metal and act accordingly or stay away altogether. Caveat Emptor!

gold rush


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