Gold is cooling off after a 5-week central bank-driven rally sending prices up over 10% in the short term. Dollar strength is pressuring commodities across the board today, with gold down nearly 1% in early trading.
Last Thursday the precious metal's move formed the Golden Cross — widely regarded as a bullish technical indicator formed when an asset priceline's 50-day moving average breaks above its 200-day moving average. The last significant golden cross on the gold chart was February 6, 2009; from which gold prices rallied 11% in the following eleven trading sessions.
"The golden cross is a technical term a lot of people use and I think it's very much overcompensated with enthusiasm," says Don Hays, founder of Hays Advisory, in the attached video. "The golden cross works sometimes and it doesn't work other times."
He questions the indicator's reliability because it's so heavily watched by traders that dump out the moment it shows signs of breaking down. Instead, Hays views gold as a "fear index" and attributes its 11-year bull run to the attacks on 9/11.
"We actually would like to see gold come down, we would think it's fear coming down," he says. "We're hoping that it will roll back over, and if that happens it would be a very good sign for the U.S. and the world."
And, in Hays' view, that type of psychological shift would be fuel for the 2012 rally that has S&P 500 up 16% year-to-date, the Dow Jones Industrial Average up 11%, and the Nasdaq up 21%. All three major U.S. indexes up over 4% so far in September.
"If gold turned down it would be very good for stocks and for the feelings of people," Hays says. "They would just start feeling better about their country and themselves."