Where Will Gold Bottom in this Corrective Cycle?
Around two months ago I advised my Partners to look for Gold to drop to the 1040-1070 area in US dollars. This followed my projection in early August of a Gold rally from 900 to 1250 before the next top, and I was close as we hit $1,225 and rolled over. This correction so far in Gold is normal in a bull market, and is intended to knock everyone off the back of the bull. The bull likes to make sure as few people as possible are along for the ride.
Currently we are seeing a strong counter-trend rally up in the US Dollar. Investor's should keep in mind that the dollar index is simply a mathematical calculation against a basket of other currencies. In this case, 57% of that formula is the Euro. The Euro has had a dramatic correction and is likely to continue to drop due to problems in Greece and other countries. This makes the dollar look better on a relative basis, but investors should remember this is largely cosmetic. Deficits continue to balloon, debt ceilings are raised, and the US Treasury has to rollover a significant amount of Treasury Bonds this calendar year. Traders and Investors over-react to the rallying dollar and start selling off Gold and Silver as fast as they can. However, at some near term point, Gold is likely to firm up and bottom regardless of the dollar rally. There has been no fundamental shift in the US Dollar or it's merits in my opinion, and in fact, the recent economic events are only making Gold look more attractive relative to other world currencies. This pullback is required to work off the excessive optimist we saw in early December.
Most recently on January 22nd, I wrote an update to my December 4th forecast for Gold. In that update I mentioned that Gold was in a "C wave" down, and would likely bottom around 97-102 on the GLD ETF. You can read the entire article here: http://activetradingpartners.com/articles/2010/01/gold-continues-in-c-wave-down-dave-banister-jan-22/
A pullback in Gold to the 102.50 area on the GLD ETF would fill a "Gap" in that chart, and represent a normal bull market 50% correction of the last swing. A further decline to the 97-98 area on the GLD ETF would represent a 61% Fibonacci re-tracement of the entire rally from April 2009 into December 2009. This correction in my opinion could continue into early March or May of this year, before the next leg up begins. Gold investors are advised to scale into Gold as 1040 US is hit, and all the way down to $980. At that point, the bull will continue to new highs as the smart money will be accumulating the gold dips in my opinion over the next 30-90 days.