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On Thursday of last week, gold hit an all-time high of $1,227 an ounce. Since then, gold’s price is down to $1,145 per ounce for a quick loss of nearly 7 percent.
Strong U.S. employment data were cited as the reason behind this move and other fireworks in the financial markets.
After the data release stock prices shot up, but finally closed way below the day’s high. That’s a rather disappointing outcome for bulls expecting a year-end rally to begin soon.
The dollar also caught a bid and rose two cents against the Euro — not giving back this gain later on.
Lastly, Treasury bonds got hit hard, down more than a full point, extending a losing streak which cut 30-year bond prices by four points in as many days, another very sharp move.
The technical pictures of all of these markets were already weak and point to an overdue correction. The release of better-than-expected employment data seemed to be a welcome trigger — but nothing more.
For some clarity, let’s take a closer look at the dollar versus the euro …
A Normal Short-Term Euro Correction
After rising from below 1.30 to slightly above 1.50, or 15 percent in seven months, some kind of a correction should be accepted as normal.
First, technical support comes in at 1.45. If the Euro declines to this level, it’ll mean that nothing spectacular happened, just a normal flow of the tides. Hence, it’s not yet time to make much out of this short-term reversal.
After a month-long rise, a larger correction is not a surprise.
Source: www.decisionpoint.com
Then There’s the Amex Gold Bugs Index …
As you can see on the chart, just a few days ago this gold mining index was back to its all-time high of early 2008. It’s the first index having achieved that feat. This extraordinary absolute and relative technical strength is containing a very bullish medium- and long-term message for this sector. I fully expect an outbreak to new highs and more spectacular gains to follow relatively soon.
But a short-term correction beginning at this distinctive point definitely wouldn’t hurt. It’s a typical resistance area. To take a deep breather here could be just what the doctor ordered to get in the right shape to stage the next huge rally phase.
Source: www.decisionpoint.com
After returning to the all-time high of 2008 some kind of a correction is but a healthy and refreshing move.
Bottom Line: Gold’s Medium-Term Uptrend Is Still Healthy
Finally, let’s look at gold’s price chart. After the breakout of this huge consolidation formation at approximately $1,000 an ounce, a fast uptrend followed, lifting gold’s price by about 20 percent.
This very healthy trend does not exhibit any signs of weakening. There are no negative divergences or even short-term trend breaks. This medium-term uptrend is fully intact.
At this stage of the bull market I expect no more than a short-term correction lasting just a few weeks. And I see no change to the fundamental picture, either.
Source: www.decisionpoint.com
I expect the current correction to turn out as nothing more than a short-term hiccup, akin to the correction of November 2007. It may last a few weeks and bring prices down a bit more. But in the end it will turn out to be just another buying opportunity.
Best wishes,
Claus
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Money and Markets (MaM) is published by Weiss Research, Inc. and written by Martin D. Weiss along with Nilus Mattive, Claus Vogt, Ron Rowland, Michael Larson and Bryan Rich. To avoid conflicts of interest, Weiss Research and its staff do not hold positions in companies recommended in MaM, nor do we accept any compensation for such recommendations. The comments, graphs, forecasts, and indices published in MaM are based upon data whose accuracy is deemed reliable but not guaranteed. Performance returns cited are derived from our best estimates but must be considered hypothetical in as much as we do not track the actual prices investors pay or receive. Regular contributors and staff include Kristen Adams, Andrea Baumwald, John Burke, Amy Carlino, Selene Ceballo, Amber Dakar, Dinesh Kalera, Red Morgan, Maryellen Murphy, Jennifer Newman-Amos, Adam Shafer, Julie Trudeau, Jill Umiker, Leslie Underwood and Michelle Zausnig.
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