The Gold Rush Is Over For Now, However, It Will Be Back
Anyone one that knows anything about the ebb and flow of the markets knows that gold was severely overbought. Therefore, it is simply time for gold to pullback or even have a meaningful correction at this time. After all, gold has outperformed every asset class over the past 10 years. In 2001, gold was trading around $255.00 an ounce. Earlier this week, gold traded as high as $1917.90 and ounce before pulling back. This afternoon gold is declining lower by $97.00 to $1764.00 an ounce. It is very important for traders and investors to remember that nothing goes up in a straight line.
Here are some signs for traders and investors to know when things are extended and due for a correction. First, the talking heads and the major institutions upgrade the asset continually. Recently, gold has been tauted by many as the safe haven trade that could not decline. Last week, J.P. Morgan Chase just upgraded gold to $2500.00 an ounce. Whenever brokerage firms start to throw out upgrades like this the asset whether it be gold or Apple Inc.(NASDAQ:AAPL) will need to correct. Perhaps you remember the famous Goldman Sachs call for oil in July 2008. At that time, Goldman Sachs called for oil to trade up to $250.00 a barrel. At that time WTI oil was trading at $145.00 a barrel and very overbought on the charts. A few days later oil began one of its greatest declines that we traders have ever seen declining by over $100.00 a barrel. In November 2008, the same thing happened with Google Inc.(NASDAQ:GOOG) when the stock was trading over $700.00 a share. Some famous talking head on one of the popular cable financial channels was upgrading the stocks on a daily basis. Popular brokerage firms were basically upgrading the stock to ridiculous levels. One firm upgraded the stock to $1500.00 in the next 12 months. That was the upgrade that broke the camels back, Google stock plummeted lower by $300.00 over the following year. There are countless examples of this happening over and over. Maybe you all remember Taser International Inc.(NASDAQ:TASR) in 2004, this stock was another classic example of continuous brokerage firm upgrades.
Gold is a currency, it is not in a bubble. Gold cannot be printed or created by the click of a mouse. Gold must be found in the ground and the process to get it is long and drawn out. Central banks want it because they know it is the only real form of currency. It has been this way since biblical times and it always will be this way. Many people believe that gold is a useless relic, that is not true. Gold is one of the best conductors of electricity and has countless industrial uses. The problem is that gold is so rare that businesses cannot afford to use it for industrial purposes. Gold is selling off today and that is good for people that may want to buy gold in the future. This is nothing more than a long overdue correction for the precious metal. After a correction, traders and investors will be once again be buying the precious metal.