200-day moving average in gold trading
The 200-day moving average is the average of gold's last 200 daily closes, the most watched long-term trend line; price above it is read as a bull market.
Also called 200 DMA, 200-day SMA, 200 MA, Long-term average
The 200-day moving average is the simple average of the last 200 daily closing prices, roughly ten months of trading. It is the best-known long-term trend indicator across markets and is quoted in news coverage of gold.
How it applies to gold trading
The common reading: gold above a rising 200-day average is in a long-term uptrend, below a falling one in a downtrend. Because so many investors, funds and analysts watch it, the line can attract buying or selling when price approaches it, especially on the first test after a long trend.
Distance from the 200-day is also a measure of stretch. In strong rallies gold can trade far above it, and a large gap has at times preceded sharp corrections, though it can persist for months. Swing traders use the line as a bias filter: take longs only above it, shorts only below.
Worked example
Example (hypothetical numbers): gold trades at 4,050 with its 200-day average at 3,600, a gap of 12.5%. A two-week correction takes gold to 3,880 and later to 3,640, where buyers return near the line. A trader who bought at 3,650 with a daily close stop below 3,560 risked $90 per ounce, $450 on 0.05 lots.
A common mistake
Expecting the 200-day to be an exact level. Gold often overshoots it by tens of dollars intraday before closing back above.
See also: Moving average, Golden cross and death cross, EMA and SMA, Position trading.
Frequently asked questions
Why is the 200-day moving average important for gold?
It is the most widely watched long-term trend line, so many investors and funds use it for decisions, which can make it act as support or resistance.
Should I use the 200 SMA or 200 EMA?
The simple version is the standard quoted in the news. The EMA reacts faster. Use one consistently.
Is gold bullish when it trades above the 200-day average?
It is in a long-term uptrend by that measure, but it can still fall sharply in the short term.