When an investor analyzes gold, or any investment for that matter, they take a look at two distinct aspects of information that will help and guide them to decide whether their purchase or sale of gold (or comparable investment) is a smart decision to be made. These two distinct aspects are fundamentals, and gold chart technical analysis. Fundamental information is based on the analysis of the investments financial statements, its general health, it’s history and current history, as well as its competitors and it’s standing in the markets. Technical analysis is based upon data only, including, but not limited to, past market data, price and volume. Technical analysis is very chart and data heavy, where as fundamentals takes a great deal more into account.
Technical analysis is based solely upon the price of the investment, in this case gold, as well as the history of the price, and the history of the volume traded. Proponents of technical analysis believe that by studying the price and volume history of gold, you can accurately gage the future price and volume, and that past performance is often indicative of future performance, given the same conditions.
Past market data for gold can also be used technically with the past market data for other investments, such as the dollar. Analysts believe they can accurately forecast future results by looking at the past market data of gold versus the dollar. For example, if in the past the sudden selling of the dollar caused a quick and immediate investment in gold, one could assume that if the dollar once again quickly falls, that it would be safe to say that buying gold at that time would be a wise investment. Technical analysts believe that this data is all that is needed, and that fundamentals, such as supply and demand, are not needed to make an assessment on the movement of gold.
These technicals are reported in many different ways, although all technicals are reported in graph or data form. An investor who prefers to use technical analysis would study gold charts, and look for trends in the data. For example, an investor might be charting and notice a “head and shoulders” pattern, which is a well known pattern. A head and shoulders pattern basically states that what goes up, will come down, and will follow the same pattern going down, as it did going up. The name comes from what the pattern looks like on the graph, with the largest up and down spike being the head, and the smaller price rises and subsequent decreases are the shoulders.
Technical analysis also depends heavily on indicators, which are mathematical transformations of the price and volume data. It is this indicator that will tell the investor whether a price is going up, going down, or remaining the same. It is a method to determine a trend, which is the ultimate goal of a technical analyst. Once a trend has been located, an investor can use that trend to decide whether to buy, sell or hold.
Technical analysis can be used for any kind of investment, but is mostly used in the commodity markets, such as gold, as well as the FOREX market. Gold doesn’t typically have as many factors that would greatly affect its price as would a stock, or even a bond. With a typical common stock, an investor can look at its technical’s, but will also need to study the company’s leadership, their competitors, their services and/or products, along with a great deal more information. With gold, those types of fundamentals just aren’t there, so one would have to study its price and volume history to get a good gage of what the future will bring.