Effectiveness of Technical Analysis in predicting Gold price movements
Dept. of Business Administration
Mangalore Institute of Technology and Engineering
Karnataka - 574227
In the present economic condition, gold is being perceived as a safe investment, and therefore its price is on the rise, although global financial markets have simply melted. In this context, a study was made to find out whether the gold prices move in a pre-determined pattern and whether it is possible to “read” these patterns- which is the essence of technical analysis. Spot price of gold for three years (January 2006 onwards) was taken and technical tools such as Relative Strength Index (RSI) and Moving Average were used in the study. Line charts were used to predict the future price for gold for the year 2009. The study showed that RSI is an excellent tool in predicting gold price movement, as, when “Buy” signals were generated by RSI, immediate increase in spot gold price was witnessed and when RSI gave a “Sell” signal, actual spot price of gold really started to decline. The intersection of 5 day and 30 day Moving Average lines put on a chart also accurately generated “Buy” and “Sell” signals. Using all these techniques, it was predicted that Gold will touch Rs.15800 per 10 grams, and if it crosses 16,000 Rs., it may touch Rs.17,400 per 10 grams.
Key Words: Gold, Technical Analysis, Relative Strength Index, Moving Average, Line chart, RSI.
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