Gold Price Due to Drop Again

Despite the expectations of some that the gold price ought to rise to $1300 and beyond, it has failed to climb substantially higher. As someone who started out as a Gold Bug and enjoyed using technical analysis charts, I’m not too surprised that people get the gold price wrong over and over.

Over the past few months I have started leaning heavily toward the idea that technical analysis charts, while nice visual aids, aren’t necessarily effective tools for predicting price direction. One of the problems with using technical analysis is that it’s too easy for bias to creep in. Anything from the time period selected, to the tools used and where the lines are drawn is an invitation for hidden, or not-so-hidden, opinion to masquerade as fact.

I have been working to build a system based on, in part, the following:

  1. Numbers and math;
  2. The Golden Mean;
  3. Alan Andrews Action-Reaction Principle;
  4. Probable Price Ranges;
  5. Murrey Math
  6. Various Ratios

Charts simply can’t avoid being inherently biased. Perhaps the system I’m constructing is biased too, but at least you have a list of what it consists of and can decide for yourself it is better or worse than the whiz-bang technical analysis charting software available today.

One of the ratios I have recently started using is a Positive / Negative one. To over-simplify it compares up days with down days and is represented by a decimal. Today’s PN Ratio = 0.668318874. The last time the PN Ratio was this high the gold price dropped $47 over 14 trading days. If something similar happens again, then that would put the gold price under $1200.

I’m not saying that is going to happen. I’m not saying it won’t happen either. One thing I have learned is that you shouldn’t assume anything about price. Don’t assume price will follow the seasonal trend. Don’t assume price won’t follow the seasonal trend. Don’t assume that just because a high PN Ratio last time resulted in a price drop that a high one now will cause a similar drop. However, short of some very aggressive (and perhaps prolonged) new trend higher in gold, it wouldn’t be surprising for the price to drop.

Of course the ratio could push higher, but that only means that the gold price would have a greater distance to fall at some future point in time — take a look at Alan Andrews and the Action-Reaction Principle. Price, like many other things in nature, seeks its own balance.

There are many more tools in the “bag” that I’m developing. The tend to reinforce each other. When several of them coincide in the same direction, they provide a powerful signal about the direction of price. Price isn’t as random a walk as some would have you believe. While it’s challenging moment to moment and day to day to predict the direction of price, replacing inherently biased technical analysis charts with tools based on math as, well as using certain fundamental principles, makes the task of determining price direction much simpler.

Bottom Line: The gold price is getting stretched and will likely slip back down below $1200.

Disclaimer: Don’t take financial advice from strangers on Medium.

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