Technical Analysis Fundamentals

Fundamental analysis refers to the 'hard facts' that affect the underlying investment vehicle. For stocks, the trader would be interested in the profitability and basic type of business in which the company is involved, the financial data that is available about the company itself and any current news that could affect the company positively or negatively.

The fundamental analysis of commodities such as gold or oil or other resources would relate to calculated supply and demand, the efficiencies of production and again relevant news reports that may impact future production and consumption.

So what is the definition of technical analysis? Technical analysis on the other hand, basically ignores 'news' and looks at past price activity in an effort to forecast future price movement. The presumption for the technical analyst is that all of the relevant news is distilled into the actual price of the underlying security whether it is gold, a stock or a countries currency.

Technical analysis can be broken down into four broad categories of analysis.

1. Chart pattern interpretation.
2. Price action interpretation.
3. Timing.
4. Indicator interpretation.

Chart pattern interpretation involves looking at specific visual patterns within a price chart. Head and shoulders formation, double top, pennant, and various breakout patterns are commonly studied and used as predictors of future price action.

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The Insurance Policy No One Talks About

Putting aside the fact that gold has appreciated at double-digit rates on average this decade against all of the world's currencies and tripled in price over the past six years, let's look at the metal not as an investment vehicle but as an insurance policy against loss of purchasing power.

Peruse this idea for just a brief moment.

To protect your home against destruction, you purchase an insurance policy, right? Gold bullion is a form of financial insurance and should be regarded as so. Not as an investment but as insurance against the erosion of purchasing power caused by the declining dollar.

Dollar convertibility into gold ended on August 15th 1971, when President Richard Nixon forever closed the gold window. No longer tied to the gold standard, the U.S. dollar could be printed in unlimited quantities or in other words just 'float.'

Today, after 38 years of being backed by absolutely nothing but the full faith and credit of our U.S. government, our beloved dollar is worth a fraction of what it used to be. If you compare the buying power of that one dollar bill in 1971 versus today, you would be able to buy only EIGHTEEN CENTS, after adjusting for inflation.

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