Reading your last comments on precious metals, I noticed that you are using 200-day exponential moving average. And I thought that the talk was always about simple MA, I even remember David stressing using it and not EMA a number of years ago. I looked through the charts mentioned recently; both by you and David, and they all have EMA. Can you please comment on this and explain your choice, because two measures can be quite different. For example, simple MA on the silver chart is at $17, while EMA, is at $18 where the price currently is. 

Eoin Treacy's view

Thank you for this email which may be of interest to other subscribers. I have always favoured the exponential moving average because I believe that giving more recent data some additional weighting in the calculation is the most appropriate policy. However as you highlight there is some debate, which is unlikely to ever be resolved, between what are the best moving average calculations to use. 


As you point out there is an almost $1 difference in the calculation of the two moving averages at the present time. That’s one of the primary reasons we refer to the 200-day MA as a trend mean rather than a sacrosanct level at which prices have to find support or encounter resistance. The reality is that when prices are overextended relative to the trend mean the potential for a reversionary move increases. By the same token when it comes back to test the region of the trend mean there is potential for a reversal. 

Silver touched the exponential moving average yesterday so it is now in the region of the trend mean but there is potential for an overshoot. Even then we have to consider the possibility that the more than yearlong bull market is over so what happens within this $1 area is important. 

Increasingly bearish forecasts help to confirm analysts are attempting to get out in front of the decline but also tells us that there are a significant number of shorts in the market. Deutsche Bank’s announcement today that they think gold is overvalued by 25% is an example of this. Nevertheless, clear upward dynamics will be required to check the slide and pressure the shorts.