The golden cross is a relatively infrequent technical indicator which occurs when an asset’s (gold’s) short-term moving average (like the 50-day moving average) crosses above its long-term moving average (like the 200-day moving average). The golden cross is often associated with important upward price movement and it is considered a bullish 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 support level.
Golden Cross in Gold Market
The golden cross does not automatically translate into a further rally in the gold market. Actually, since 2009 purchasing gold after a golden cross has failed more than it has succeeded, as one can see in the chart below.
Chart 1: The spot price of gold (black line), short-term moving average (blue line) and long-term moving average (red line) from October 2001 to March 2016.
Since 2009, golden crosses have been seen at or close to local tops – in particular, the 2012 top is clearly seen along with a supposed “buy” signal from the golden cross. In 2014 the gold market formed a golden cross a few times, but the rallies were not sustained. This means that the golden cross in gold is not a reliable bullish 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 golden 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.