As gold and silver continue a steady move up from recent lows they face a cluster of resistance. The cluster has been formed by the convergence of a number of popular moving averages.
Most charts show jagged price movement. The jaggedness makes it difficult to get a good handle on the trend. Moving averages were developed to smooth out the jaggedness to give traders a better picture of the trend. A moving average is simply a rolling mean where the average is calculated by discarding the oldest point in the data series and adding the newest point.
These days, the most popular type of moving average used in technical analysis of stocks is the exponential moving average (EMA). An exponential moving average uses a smoothing factor to give a higher weight to more recent prices and lower weights to the older ones in the series.
Although moving averages were initially developed to provide an idea of trend, over a period of time traders started using them as support and resistance levels. If the price is above a moving average, some traders believe that the moving average acts as a support; if the price is below a moving average, the moving average acts as a resistance.
As the chart shows the four popular exponential moving averages are clustered around the closing price of gold. A cluster such as this one usually provides strong resistance.
Gold faces a significant hurdle from the convergence of its 50- and 200-day EMA above its present price’¦Read More at Forbes.