(By Michael Harris) Peter Brandt asked today in StockTwits: "Does anyone want to deny that the trend in Gold is NOT down???? ". I know a few people who would deny that the trend is down, a few more who would claim that the trend is sideways and even some that would insist the trend is up. I even know some people who belong in the category "I don't care since a trend is only defined in hindsight". These differences arise from the adoption of different timeframes, trading styles and/or investment horizons. Thus, defining the trend without defining those other things is like showing an equation without defining its variables.
Based on different timeframes and investment horizons, we have:
(1) Intraday trends: Usually the sign of these trends can change several times during the day. They are of value only to intraday traders.
(2) Short-term trends: These last for a few days or maybe weeks, depending on investment horizon. They are of interest to position and swing traders.
(3) Longer-term trends: These can last for months or even for a few years. They concern trend-followers of the classical style.
(4) Secular trends: These can last decades and are of interest to buy and hold investors and other very long term investors.
I talk about the "trend illusions" in my out-of-print book "Profitability and Systematic Trading" (Wiley, 2008). Basically, the idea is that the notion of a trend is only valid in hindsight because trends are only defined in hindsight.
So what kind of a trend do we have in gold at this point?
(a) The short-term gold trend is down
It is clear from the above daily spot gold chart that prices are on a downtrend for the last few weeks. But the trend line plotted on the chart is an indication that the longer-term trend is not down yet. Thus
(b) The longer-term gold trend is still up
It may be seen from the above weekly chart that prices have been moving sideways inside a symmetrical triangle for about a year but the trendline from the first quarter of 2009 is still not decisively broken to the downside. Gold is still on an uptrend based on the weekly timeframe and a longer-term investment horizon.
(c) Gold is in a secular bull market
It is evident from the above monthly chart that gold is in a secular bull market although prices are in a consolidation phase at this point. The trendline T2 shows that at some point prices went parabolic and trendline T1 shows that at some point prices went almost vertical. The parabolic move will be cancelled if prices break below $1,200 on ounce. Until then, a buy and hold investor in gold who bought the precious metal near $300 an ounce in the beginning of last decade can still consider this a bull market and even if the violation occurs the profits will be substantial.
So what is the lesson here? The lesson is that the choice is yours. Do not let anyone impose a choice on you. "Trend" means little unless it is carefully qualified in the context of relevant timeframe and investment horizon.
Disclosure: no relevant positions except gold jewlry and the gold in my cell phone and other electronic devices everyone wants to recycle to save Earth and make money.