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- Written by Brad Zigler |
- June 24, 2010
Gold’s Waning Strength
- Details
Every market has its bulls and its bears. The gold market, in particular, has a rather vocal contingent of bulls. Some of them, though, are starting to fret over the diminishing strength of the gold market.
Yes, gold scored a new nominal high recently. Momentum indicators have been continually showing a loss of vigor in each successive move to new highs since peaking in 2006 (see "Is Gold Running Out Of Steam?". Measured by gold's premium over its 200-day moving average, the latest price spike is the weakest since the gold bull began to run at the start of the decade.
Yes, the price went up, but with less conviction than before. You see this reflected in the Money Flow Index for the SPDR Gold Shares Trust (NYSE Arca: GLD).
MFI is a volume-weighted momentum indicator that measures the strength of money flowing in and out of a security. The index methodology balances "positive money flow" against "negative money flow" against price to quantify the strength or weakness of a trend. MFI is measured on a 0 - 100 scale with higher numbers denoting stronger capital inflows.
Take a look at the GLD chart below. While the trust shares have maintained an upward price trajectory, money flows are in decline.
GLD And MFI
That's not to say that gold's due for a big sell-off now. It does, however, point to the possibility of momentum rolling over to favor the bears. At least for a while.
