Gold Trading Boot Camp: How to Master the Basics and Become a Successful Commodities Investor

CHAPTER 19

Rate-of-Change Indicators

Rate-of-change indicators are simple to calculate and can be exceptionally informative, particularly when applied to commodities, currencies, and fixed-income markets in conjunction with rate-of-change indicators applied to macroeconomic indicators, such as the Consumer Price Index (CPI) and exports.

I use rate-of-change (ROC) indicators to measure percentage changes in markets and economic statistics, as a nominal gauge, and more often, to compare with other ROC indicators.

One of the most effective ways to compare ROC indicators is over various time frames, which will allow you to assess whether momentum is accelerating, decelerating, or stagnating. If gold’s 100-day ROC is trending higher, and the rate crosses above a rising 52-week ROC, this would mean that the market is appreciating more rapidly on a short-term basis, with both rates accelerating.

Naturally, I seek out this opportunistic situation to define a market that is exhibiting favorable momentum and trend characteristics. I look for this type of ROC setup in the context of an overlay from the macromonetary side, as might be presented by any number of ecoindicators, such as money supply or the CPI.

The example shown in Figure 19.1 was present in recent months.

In this case, rewind to the fall of 2005 and the situation surrounding the gold market, which had been probing a possible ...