Charts vs. Hearts: How Technical and Fundamental Analysis of Gold Compare

In the simplest form, there are two basic strategies for investing, technical and fundamental analysis. Technical analysts seek opportunities to make money by watching price movement patterns. These traders aren’t concerned with broad economic factors or monetary policies that may have implications for gold. When you think of technical analysis picture someone sitting behind three screens covered with charts and intimidating graphs.

Fundamental analysts take the 30,000-foot view. Rather than immerse themselves in the minutia of decimal points and short-term price movements, they examine the market as a whole. When making an investment in gold they make a judgment on whether the price is reflective of the intrinsic, or fundamental value of the asset.

Why do these two groups disagree on the best method for investing? Technical analysts believe that the market is efficient. That is, the market, at all times, prices in all the pertinent information regarding an asset. Under this assumption, there is no way to make strategic investments based on fundamentals because the current price accounts for the most likely future outcome. Meanwhile, fundamental analysts believe that a read of the general market can yield opportunities for price appreciation.

So, who is right?

The debate will never end. Both sides can point to gains and claim success. In the end, the question of which is better is best answered by considering one’s risk tolerance. Technical analysts live in the narrow spaces between the dots on their charts. Fundamental analysts make a trade then wait, sometimes for years.

What can these two different styles tell us about the future of gold? Recently, a technical analyst with Evercore ISI cited “symmetrical triangles,” “reverse head-and-shoulders bottom,” and a “double top.” What do all these measurements add up to? He sees gold as “quite bullish.”

Much of this analysis comes from a common technical measure of momentum. In short, an asset that’s rising in value is likely to continue rising according to technical analysts. Given gold’s recent rise many such analysts have high expectations for growth.

How does this compare to a fundamental analysis of gold? Interestingly, the perspective on the other side of the table is equally positive. Looking to 2017 The World Gold Council has shared an optimistic outlook explaining that new markets, Asian growth, and rising inflation will all buoy the metal’s performance for the year.

These symmetrical perspectives illustrate how investors can take cues from both camps. When technical and fundamental analysts agree there's good reason to be bullish on an asset. When considering an investment take a moment to see if the charts match the heart. Do the numbers, movements, and prices reflect your inward feeling about the investment?

Many brokers have already made their decision. “There’s no denying, gold has its buy boots on,” remarked one trader. Today, inflows to increasing as more investors seek the benefits of growth seen in the last several weeks. When the market is high even technical and fundamental analysts can agree it’s time to buy.