The death cross is a technical indicator which occurs when an asset’s (gold’s) short-term moving average (like the 60-day moving average) crosses below its long-term moving average (like the 200-day moving average). The death cross is the opposite of the golden cross. As the name implies, it is often associated with important downward price movement and it is considered a bearish signal. The crossover is considered more significant when accompanied by high trading volume. Once it occurs, the long-term moving average is considered a major resistance level.
Death Cross in Gold Market
The death cross does not automatically translate into a bear trend in the gold market or it might materialize long after the beginning of the bear market. Actually, since October 2001 selling gold after a death cross has failed more than it has succeeded, as one can see in the chart below.
Chart 1: The spot price of gold (black), short-term moving average (blue line) and long-term moving average (red line) from October 2001 to March 2016.
Since October 2001, we have witnessed 8 death crosses in the gold market. In 5 out of 8 cases the death cross in gold marked good short-term buying (not selling!) opportunities and in 4 cases these were also good long-term buying opportunities. In some other cases, like in February 2013, the golden cross occurred long after the start of a bear market. This means that the death cross is not a reliable bearish indicator and viewing it as such does not seem like a profitable thing to do.
We encourage you to learn more about gold – not only what the death cross says about the state of the market, but also how to successfully use gold as an investment and how to profitably trade it. A great way to start is to sign up for our gold newsletter today. It's free and if you don't like it, you can easily unsubscribe.