Calming our Gold Bug Nerves with Michael Oliver

Sticking to the  fundamentals, I remain convinced gold shares will soon realize spectacular gains. Still, it’s easy to get discouraged as a gold share holder when the paper markets seem oblivious to the laws of gravity while our gold shares are suffering through these bloody declines. Michael Oliver, a veteran technical analyst who has worked for major financial institutions in the past, has devised his own proprietary “Momentum Structural Analysis” (MSA). He pays little attention to popular and widely used tools such as the 200-day average for gold. Instead he has found his measures of momentum have been hugely helpful in longer term market decisions. I don’t mean to claim he is infallible, but in the markets I pay the most attention to such as the stock, bond, commodity and gold markets, he has been hugely helpful in calming my nerves, which is why he is on my radio show almost every week. Regarding the gold markets, he provided an update on May 1. With his permission I am passing those comments along to you because I think they are very timely as gold has been declining over the past couple of weeks, breaking down through the $1,300 level. Here is what Michael said in his May 1 missive.

Since our major buy signal in February 2016 when gold was moving up through $1140, we’ve offered go-to-neutral trigger numbers three different times. In each case the gold market missed triggering our numbers. Therefore, we maintained our long-term bullish view. 

Because annual momentum is clearly positive and far from doing anything negative, if another indicator such as quarterly momentum (one step down from annual) were to turn negative, we’d define that as a go-to-neutral situation. 

A cautionary comment about using moving averages. Crossover of a given average, for example the wildly popular 200-day avg. (too popular in our view), is often meaningless noise. A coin toss in terms of validity. What’s more important is breaking through momentum structures, not mere averages. Sometimes the pivotal momentum structure will be at the zero line (at the given average), but often not. In any case, if you look at the price chart on page one, you’ll see the many times that price wove above and below the 3- qtr. moving avg. (similar in duration to the 200-day, though the 3-qtr. moving avg. is adjusted only each quarter), action which didn’t mean anything important or lasting. Many of those crossovers were brief intra-month events, and by month’s end the gold market was above the average (or below it, during the downtrend). 

The 3-qtr. avg. is $1299 this quarter. The last reaction low in December 2017 dropped 1.14% below the zero line/3-qtr. avg. but closed the month well above. If gold were to trade 2% below the current 3-qtr. avg. ($1273), or if it closed out a month this quarter below the zero line, then we’d consider that a cautionary or go-to-neutral event.  Go to www.OliverMSA.com for more.