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Gold Gets Hit Hard, Goldbugs Buying Opportunity or Time to Panic?

Commodities / Gold & Silver 2009 Dec 09, 2009 - 01:53 PM GMT

By: Claus_Vogt

Commodities

Best Financial Markets Analysis ArticleOn 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.

Euro Index

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.

Gold Bugs Index

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.

Gold

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

This investment news is brought to you by Money and Markets . Money and Markets is a free daily investment newsletter from Martin D. Weiss and Weiss Research analysts offering the latest investing news and financial insights for the stock market, including tips and advice on investing in gold, energy and oil. Dr. Weiss is a leader in the fields of investing, interest rates, financial safety and economic forecasting. To view archives or subscribe, visit http://www.moneyandmarkets.com .


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