Wednesday, August 31, 2011

About that gold correction – was that ‘it’?

We often sight (here, here and here for example) the 200 daily moving average (DMA) as a good long term indicator of when to buy gold on a pull back. However for most of this year gold has hugged the 20DMA very closely.

After getting as high as $1920/£1161 gold corrected sharply, falling some $220/£121 from top to bottom. But what is truly amazing about this correction is that gold from top to bottom fell over 11% in $s and just under 10% in £s and yet it still managed to close eacn and everyday above the 20DMA – this just goes to show that whenever there is a pull back in gold the depth and strength of the buying is incredibly strong and incredibly quick.

In $s:

Gold price in end of august1 About that gold correction   was that ‘it’? (click for sharper image)

And in £s:

Gold price in £ end of august About that gold correction   was that ‘it’? (click for sharper image)

So with many (yet again) calling for the top in gold as we’ve pointed out here, here andhere, we are still far from a top in gold. Despite the volatility the gold correction of last week was just another perfectly healthy correction in the long term bull market. In fact the price action since the beginning of August was starting to look parabolic, which is a phase gold will reach, just not for a while yet and at much, much higher prices.

A few weeks of consolidation around the $1774/£1080 level and a much needed breather for gold would be very healthy before making its inevitable assent on $2000 and beyond.

With gold now trading at prices seen two weeks ago it is leaving many people asking “is that it?” when comes to last week’s gold correction.

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