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Is Gold’s Winning Streak Over?

MarketWatch posed what might seem an irrelevant question last week: what is having a worse week…gold or Newt Gingrich’s chances of securing the Republican nomination? While the two are not related, the answer makes a point.

Looking at the chart of gold’s drop last week, it looks like the question is answered. The metal declined almost 7% for the week.

The decline was bad enough, but what alarmed the markets was that gold prices breached their 200-day moving average for the first time since January 2009. And with that, gold broke its longest winning streak…with 732 consecutive days above its 200-DMA (illustrated below by blue line).

That breach added a wave of technical selling that only magnified the decline. That said, gold is still up something like 88% since the last time it fell below its 200-DMA. And the metal has proven itself resilient in the past, often rebounding after falling below that key level of support.

The fundamentals that have supported gold prices have eased with recent comments from the Federal Reserve. While the metal is an intermediate term sell, I am watching the long-term outlook. And technically, gold has better prospects than Newt Gingrich…his chances have fallen from 37% to 18.9% as of last Thursday (according to Intrade).

So while I’m not holding onto gold, and I wouldn’t buy into the dip right now, I do think gold’s story still has room to run if and when the Fundamentals, Technicals and Relative Strength dictate owning Gold again.

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