11/15/09 Relative Gold – A Great Indicator Of When To Buy And When To Sell

Precious Metals Market Analysis, By Michael Pennington (Copyright 2010 Pennco Coins)

The relative Gold Chart below is gold divided by its own 200 day moving average. It has proven to be a very reliable indicator in spotting major tops and bottoms for gold ever since the gold bull market began in April 2001. The chart illustrates gold made two major tops in which it exceeded its own 200 dma by more than 30%.  This happened in May 2006 and in March 2008. On the downside gold has made some major bottoms in which it dropped below its own 200 dma by 5 – 10%.

The rGold range of 0.90 – 0.95 has proven to be a reliable BUY indicator indeed over the last 7 years.

The rGold range of 1.20 – 1.30 has proven to be a reliable SELL indicator.

Therefore, the relative gold chart leaves no doubt, gold has plenty of upward potential before reaching extreme overbought territories. The relative gold chart would reach previous peaks (2006/2008) if gold would reach $1285 which is indeed consistent with my earlier projection of $1300 by March next year.

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