Warren Buffett has an enviable long-term record in the stock market, although in recent years his performance has been less impressive.

Lately some newer investors in the momo (momentum) crowd that’s controlling this stock market have criticized Buffett. However, Buffett’s latest move shows that he is as sharp as ever.

Buffett has not been a fan of gold. As a matter of fact, he has often derided the precious metal. To the dismay of gold bugs, Buffett has been the de facto leader of the anti-gold crowd. There has been a belief that investing in gold was akin to betting against America.

Buffett deserves credit for shifting his stance to the new reality as a result of the irrational policies of massive borrowing and money printing by U.S. leaders. Berkshire Hathaway BRK.A bought about 21 million shares of gold miner Barrick Gold GOLD, spending about $563 million. That’s according to a filing released Aug. 14.

Buffett’s conversion to gold is a signal for other stock market investors.

Let’s examine this issue.   Please click here for a bigger chart of gold ETF (GLD) that will help you.

Gold has no earnings and does not pay a dividend. In analyzing gold, a chart is your best friend. Above is an annotated chart of SPDR Gold Shares GLD, an exchange traded fund. You may have to enlarge the image.

Note the following:

• The chart is monthly, giving investors a long-term perspective.

• Gold traced a very long base. The longer the base, the more important the move.

• Gold broke out from a technical perspective.

• After the breakout, gold pulled back. This is a normal behavior because gold was very overbought going into the breakout.

• An important factor behind the pullback in gold is the rise in interest rates. Interest rates rose from the recent low of 0.51% to about 0.71%. When interest rates are low, gold does not like higher interest rates. Interest rates will continue to be one of the biggest determinants of how gold moves.

• Notice the pattern traced by RSI (relative strength index). This is a bullish pattern for the long term.

• Gold is priced in U.S. dollars. Lately the U.S. dollar has weakened and this has benefited gold. However, the weak dollar has become a crowded trade and is now technically oversold. For this reason, there is a setup for the dollar to move higher in the short term. A rise in the dollar will put pressure on gold to the downside.

• The policies of the U.S. government to borrow heavily and for the Federal Reserve to keep on printing money are not likely to change. Policies of central banks and governments across the globe are similar. These policies are the main driver behind gold’s rise and perhaps the reason behind Warren Buffett’s change of heart.

• Due to the policies of governments and central banks, investors may want to develop the habit of watching the price of gold just like they watch stock indexes.

• Gold is a very small market compared with the stock market. Even a small amount of inflows into gold from large-cap tech stocks may cause a big spike in gold.

• Any big move up in gold may be positive for bitcoin BTCUSD….Read more at MarketWatch.

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