Bullion Excites Chart Watchers as Metal Nears Rare Golden Cross

Listen to What Jim Grant Says About Gold Prices
  • 50-day moving average close to rising above 100-day measure
  • Golden cross signals to some traders that gains may extend

Gold’s doing something it hasn’t done for a while -- getting chart watchers excited.

The metal’s 50-day moving average is on the verge of crossing above the 100-day measure for the first time since January. Known as a golden cross, that would signal to traders studying technical levels that prices may climb higher.

Gold’s rally last week to the highest since June, which took it above the 200-day moving average, gave investors something to cheer about, months after prices tumbled to a five-year low. Holdings in gold-backed funds are near the highest since July and money managers are the most bullish in almost five months, U.S. government data show.

"The charts are looking much better for gold,” Ole Hansen, an analyst at Saxo Bank A/S in Copenhagen, said by phone. “That’s one reason why hedge funds have adjusted exposure in the past month.”

The 50-day moving average crossing above the 200-day measure would be an even bigger bullish signal to traders, said Hansen, who expects prices to rise 6.7 percent to $1,250 an ounce by year-end. The 50-day measure is about $35 below the 200-day line.

Gold’s Gain

Investors have returned to gold this month on speculation the Federal Reserve will wait until next year to raise interest rates. Higher borrowing costs curb the appeal of the metal because it doesn’t pay interest or give returns like other assets such as bonds or equities.

Many banks are still bearish. Prices will drop to $1,000 an ounce in a year, Goldman Sachs Group Inc. wrote in an Oct. 21 report, while Societe Generale SA and ABN Amro Bank NV also predict declines next year.

“The 50- and the 100-day averages for gold are looking like they are forming a golden cross, but the peak may have passed for gold,” Jonathan Butler, a precious metals strategist at Mitsubishi Corp. in London, said by phone. “It may simply be that this is a lagging indicator of the rally we’ve seen over the past few weeks.”

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