Study: gold is falling right now, but don't get too bullish

Are you thinking about adding some gold to your portfolio as a diversification/inflation hedge? Or are you thinking about going long gold simply as a short term trade? Please be careful.
Gold and silver prices continue to grind lower. With most traders extremely bearish towards precious metals, some contrarian traders are wondering whether or not it’s a good idea to buy gold and silver now.

Also keep in mind that gold’s seasonality is extremely bullish from August – September

Gold’s weekly RSI gauges how oversold gold is in the medium term. Gold’s 14 weekly RSI currently stands at 31.

Is gold’s oversold status a bullish sign?
Here’s what happens next to gold when its 14 weekly RSI falls below 32 for the first time in 3 months.

Click here to download the data in Excel.


As you can see, it’s not a good idea to be bullish on gold just because it’s oversold. Gold rallies <50% of the time when it’s as oversold as it is today.
More importantly, all of these historical cases happened within the context of a gold bear market. In other words, gold being as oversold as it is right now suggests that gold is not in a bull market – it’s still in a bear market. Gold does not become this oversold when it is in a bull market.

This means that buying gold as a long term investment is not a good idea right now. Gold continues to exhibit bear market behavior.
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