The Gold Market Awaits Posted by James Randolph on May 21, 2012
Last week was a clear turnaround in the gold market, but it is not clear how long the current uptick will last given the overall movements of the markets. Gold has been in an eleven year bull run in which it has at times realized returns of 600 percent, making it the best performing asset of its class and, at times, the best performing asset available in investing. This popularity has not gone unnoticed by any stretch of the imagination. Investors have been fleeing to gold, literally, with the political and economic news of the past years. We have been long overdue for a correction and the current correction will continue after the current uptick.
Perhaps the most significant factor in the turnaround in gold last week were the elections in Europe, which crashed the Euro in FOREX exchanges. Immediately, the dollar gained relative strength and the price of gold measured in dollars sank. After the previous three months of a completely sideways market, in which gold neither rose nor fell, the action in the gold market has been relatively welcomed by investors.
Corrections are generally a signal of a healthy market. No market can perform a straight rise under normal circumstances, so a little movement to the downside is a very good sign that a bull market is still intact and functioning. Corrections, technically, consist of a price correction between 10 and 20 percent, though the current correction could actually be slightly more protracted given gold’s very long bull run.
Last week in the gold market, gold rose 0.5 percent but is still below the psychologically important $1,600 per troy ounce level. There is support at $1,550, and then $1,533 before the $1,500 level. Those levels may still be tested in the future even with the current uptick in gold.
Corrections are nothing to be feared. They are mainly an indication of an overall healthy market, but they are also the best chance and opportunity we have as investors to take positions or to increase positions in gold. Investors in the know hold physical gold, of course, and no one is selling right now or entertaining plans for selling. The real action in the gold market is buying, which will be occurring rapidly and at volume in the next weeks.