Final Dip of the Precious Metals Correction - all aboard for $1,200 gold
Whether by means of Elliott Wave Analysis or through careful scrutiny of relevant news and market action, today's dip in gold and silver was foreseen by many. While I never attempt to predict or play upon short-term movement in markets as volatile as gold and silver, I nonetheless had a feeling yesterday that we would have a big dip today. In fact, I would prefer a continuation down to the $870-$880 range for gold, as this would build a stronger spring-board for gold's ascent to $1,200.
Short-term movements like these don't phase me one bit anymore. Back in May/June of 2006, during the previous big correction, I was certainly phased. I thought for a moment that the rug had been pulled out from under the commodities super cycle. :) Of course, the lesson I learned in time was that I was standing too close... one has to step back and consider the wider context, viewing daily movements as pure noise.
The underlying fundamentals for gold and silver remain fully intact.
Corrections of this depth, both in the 1979-1980 spike and the current cycle, have historically lasted about 4 weeks, with only a couple of exceptions (one being the 2006 correction mentioned above which actually dragged on for 15 months while interest rates remained stable). After watching a decline in the number of short positions on gold futures contracts in the latest Commitment of Traders report, I propose that wherever bottom is reached in this dip... that is, wherever it next reverses direction convincingly, will mark the end of this correction.
Also, consider the real story regarding what is happening with the US Dollar today. The USDX stands at 72.28 at the time of this writing, up .96 on the day. But is it inherent strength in the USD that's behind the move? No, it's the beginning of weakness in the Euro. Recall that 57.6% of the USDX value is determined by the USD's ratio to the Euro. If investors, sovereign funds, etc. that have already shifted assets into the Euro from the USD begin to sense future weakness in the Euro (which shares many fundamental weaknesses with the dollar, though not yet on the same scale by any means), they may yet again shift their assets... out of the Euro... into some other currency. This may cause a momentary bump in the USDX as Euro weakness makes the USD appear to reverse... but it's totally relative, and indicates nothing in the way of a fundamental reversal, unfortunately. What will investors fleeing the Euro move to? Hmmm... burned by two successive fiat currencies.... where to go..... Gold? Definitely... and this is why the next move in gold, in my opninion, will be a powerful surge indeed. Still, the when and the how don't matter to me. I know gold is going to $1,650 at the very least, silver to $50, so I'm just watching it all unfold with infinite fascination.