Gold Is Technically Oversold With the Debasement Trade Alive and Well

When the price of gold peaked at $5,500 in January, it was technically overbought. Now the dynamics have flipped, with gold “massively” oversold.

“Oversold” is a technical term meaning that an asset has declined so rapidly or so far that momentum indicators indicate selling pressure may be exhausted, and a rebound is likely in the near future.

The 200-day moving average currently indicates an oversold market.

Gold tends to find support when the price falls to 90 percent of the 200-day moving average. We are currently well below that level, with the 200 DMA at around $4,559.

In an interview with Kitco News, Sprott managing partner and market strategist Paul Wong noted the 200-day moving average and said the charts look remarkably similar to previous pullbacks.

“The percentage below the 200-day moving average, that's just a technical measure. Internally, I have five or six other measures that show minus two or minus three standard deviations oversold. I tend to think about things more in terms of probabilities: where are you on the distribution curve probabilities? Are you oversold? Give me a number. According to this measure, it's minus two standard deviations. According to this measure, it's minus two and a half, minus three, whatever. Add them all up, and what does it mean? It means that it's harder and harder to push down the price of gold. That's what the probability says.”

Wong emphasized that it’s not just one metric signaling an oversold gold market.

“I've built up all these indicators over the years, so I fire them all up, and if all of them are saying minus two standard deviations or lower, then chances are it's oversold. It doesn't mean it's the low; it just means the bulk of the selling is probably done. And now you're switching to look for an entry point, or if you're a massive fund, you just start buying, and on down-dip days when it drops 1 percent or 2 percent on some news or whatever, you just buy a little bit more.”

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