There are many pundits and economic analysts who study investment trends and how certain assets perform on the markets. Gold might not be regarded as a volatile asset by a lot of people but it is not immune to the ups and downs, gains and losses that all assets that are traded go through. It is for this reason that a lot of investors track their ups and downs. However, not everyone understands how gold moves or why it moves the way it does.
If you have gold in your portfolio, it is in your best interest to understand the trends or the technical analysis that analysts put out so you can make informed decisions about when to sell.
What is a technical analysis and why is it important?
Simply put,technical analysis is a forecast of where the price of gold is headed by using past historical data. Analysts take a look at gold and based on how it had acted before and what brought specific changes.
Gold generally moves in three directions up or down and sideways. A technical analysis is based on either movement.
The uptrend technical analysis looks at the past and how they can help predict future gains and the downtrend looks at the slumps the precious metal faced in the past and how they can help predict future slumps. The sideways analysis looks at the price of gold when it hovers around the same level. This is an indication of whether investors should expect a rally or decline of the gold price in the near future.
It is important to keep in mind that gold can experience more than a single trend at the same time. Because of the different market perspectives that can happen at the same time.
You could be observing an upward trend from a long-term perspective and switch perspectives by zeroing in on a particular part of the trend and you could notice some aspect of a downward trend.
A gold technical analysis has three important components. Price patterns, momentum, and sentiment.
Price
Most analysts regard the price as the most important factor. Price action indicates how the price of gold moves. A lot of short-term traders rely on this action and form extrapolations to make educated trading decisions. Price analysis involves looking back to the past to see what was done and how that particular action changed things.
Momentum
When it comes to gold, momentum is the speed at which gold prices change. Tracking momentum is useful when markets are rising than when they are falling. The momentum is worked out by taking the current gold price and subtract the historical time. If the current gold price goes higher than the past price of gold then you have a positive momentum indicator but if the price is lower than what it was at the same point in the past the momentum indicator is negative. This can be a great indicator of when you should buy or sell your gold.
Sentiment
This factor is all about the investors. It focuses on how they feel about gold and how their feelings shape the value of gold. Market sentiment can be low or high especially when the economy isn’t doing so well and the central banks drop or raise interest rates. Since the gold price is also affected by geopolitical tensions then sentiment over those tensions will affect gold.
Not all investors follow sentiment. Contrarian investors prefer to trade against current sentiment, selling when others are buying and vice versa.
The bottom line is that technical analysis can be useful for investors who watch bullish or bearish markets. It can help investors decide whether to sell their gold now and wait for the perfect time to get into the precious metals market.
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