Gold Flashes a Long-Term Buy Signal
A commentary on recent events by National Gold Group’s Michael Carr – November 29, 2012
One of the most successful long-term investment strategies has just signaled a buy in the gold market. In the past, this signal has been accurate 75 percent of the time and on the rare occasions when it has been wrong the losses have been very small. Based solely on this signal, gold is likely to be higher six months from now.
The buy signal was generated by relative strength, an indicator that has been studied in-depth by the academic community for years. Results of their tests show that the concept works well for investors and is profitable in markets all around the world. The chart below shows gold prices with a relative strength line. Buys are signaled when the relative strength rises above 80. Gold broke above 80 in the week of November 9 and now has a relative strength rank of 86.
Relative strength recognizes the idea that markets trend. This strategy buys the investments that show the greatest gains over the past six months, relative to other investment options. This concept makes sense if we think of investing as a marathon race. If you had the chance to bet on the outcome of the race at the halfway point, you would probably bet that one of the runners near the lead is likely to win. In the long-term race for profits, gold is leading the pack and gives every indication that it will continue being among the winners.
Economists and finance professors have spent years studying the markets. There is little that they agree on other than the fact that relative strength consistently identifies profitable buying opportunities. Gold is a buy based on this strategy and given the economic environment there is every reason to believe that gold will continue rising.
The above commentary is for informational purposes only and is not a solicitation by National Gold Group or Michael Carr. It is the commentator’s opinion only and not intended for investment recommendations, and does not necessarily reflect the views of National Gold Group. Any references to outside sources are believed accurate. Past performance is not a guarantee of future results. All commodities involve risk. Investors should consult their financial advisor before making any investment decisions.
