Gold Correction Declines at Unsustainable Rate

| June 26, 2013


Gold closed sharply lower today, moving down to a new low for the cyclical downtrend from 2011. As expected, the breakdown of the descending triangle formation last week has been followed by a severe decline during the last five sessions.

In September 2011, our cycle analysis predicted the formation of a long-term top in the gold market. Following the development of a consolidation formation from late 2011 until early 2013, prices moved below congestion support in the 1,550 area. As expected, the breakdown was followed by a severe decline of 23 percent during the last three months. However, the cyclical downtrend is moving lower at an unsustainable rate and it will almost certainly be followed by a violent oversold reaction.

The Gold Miners Index has lost two-thirds of its value during the cyclical bear market and it is also experiencing an unsustainable decline.

Given the historic expansion in the monetary base since 2008, the fundamental foundation for the secular bull market in gold remains intact and we are likely several years away from the terminal phase of the rally.

Cyclical corrections such as this one are healthy developments as they purge speculative excesses from the market, thereby preparing it for the next phase of the advance. Additionally, they provide long-term investors with opportunities to add to their positions. As always, those accumulation opportunities are best identified through the use of optimal entry points as defined by the judicious application of chart analysis and we will report those opportunities as they develop.


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Gold closed sharply lower today, moving down to a new low for the cyclical downtrend from 2011. Technical indicators are extremely bearish overall on the daily chart, strongly favoring a continuation of the decline.

The sharp decline during the last five sessions was predicted by the breakdown of the descending triangle formation last week. The breakdown of a descending triangle is usually followed by a decline that is equal in magnitude to the height of the formation. In this case, the initial short-term target of the breakdown was 1,225 and that objective was achieved today. Therefore, it is possible that the next short-term low will develop in this area.

Additionally, we have entered the window during which the next short-term cycle low (STCL) is likely to develop, so an oversold reaction could occur at any time during the next few sessions.

In September 2011, our cycle analysis predicted the formation of a long-term top in the gold market. Following the development of a consolidation formation from late 2011 until early 2013, prices moved below congestion support in the 1,550 area. As expected, the breakdown was followed by a severe decline of 23 percent during the last three months. However, the cyclical downtrend is moving lower at an unsustainable rate and it will almost certainly be followed by a violent oversold reaction.

The Gold Miners Index has lost two-thirds of its value during the cyclical bear market and it is also experiencing an unsustainable decline.

Given the historic expansion in the monetary base since 2008, the fundamental foundation for the secular bull market in gold remains intact and we are likely several years away from the terminal phase of the rally.

Cyclical corrections such as this one are healthy developments as they purge speculative excesses from the market, thereby preparing it for the next phase of the advance. Additionally, they provide long-term investors with opportunities to add to their positions. As always, those accumulation opportunities are best identified through the use of optimal entry points as defined by the judicious application of chart analysis and we will report those opportunities as they develop.

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Category: Commentary, Market Update


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