Is The October Correction in Gold Already Over?

By: Przemyslaw Radomski | Fri, Oct 19, 2012
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Based on the October 19th, 2012 Premium Update. Visit our archives for more gold & silver analysis.


 

In today's essay on the current correction in gold we would like to focus on one single question:

Is the correction in gold over?

In order to provide you with a reply to this question, we will analyze 2 charts (USD and gold) and the table that links them. Let's start with the former one.

Let's start with the USD Index chart (charts courtesy by http://stockcharts.com.)

$USD (US Dollar Index - Cash Settle (EOD)) ICE

On the above chart we see that a rally appears possible as we have seen a move to the upper part of our downside target red ellipse. Another significant rally could be seen from here with a local top in late October or early November. The maximum upside target level is shown with a black ellipse - the 80.50 to 82 range.

We don't expect major strength in the USD Index before the coming election as this could hurt the general stock market and that could cost votes.

Please take a look at the lower part of the above chart that features gold and silver and compare it to the recent performance of the USD Index. The key point here is that the recent sideways trading in the USD has resulted in lower precious metals prices - if we see more sideways trading, we can easily see more declines in the metals. If, however, the USD Index rallies (not even significantly) the metals could decline sharply. We expect this relationship to be short-lived, but still this is something that is currently in play.

Is the link between USD and gold really in place?

Correlation Matrix

The Correlation Matrix is a tool, which we have developed to analyze the impact of the currency markets and the general stock market upon the precious metals sector. The correlations (here: the above-mentioned link) have actually weakened since last week. What's most important is the way in which they weakened.

Precious metals prices moved lower even though the USD Index did not rally and in spite of the rally seen in stocks. With these two bullish indicators in place, gold did not respond positively; this is a sign of weakness. There are clearly bearish implications going forward. This lack of reaction to the strength in stocks means that the bullish picture in the latter is not necessarily a threat to our speculative short positions in gold and silver. We are concerned but not to a point of closing them.

While the full version of this article includes gold seen from various perspectives (and it's literally 12 times bigger than the essay that you are currently reading), we believe some important points can be made using only one of them - let's have a look at the yellow metal from the non-USD perspective. It is a non-USD gold chart, meaning a weighted average of gold priced in different currencies, other than the USD - the weights are as in the USD Index, so this charts is similar to the one featuring gold priced in euro.

$GOLD:UDN (Gold (EOD/PS DB US$ Bearish) CME/NYSE

In the chart, a correction now appears to be underway with gold reaching its 2012 high, and the correction does not appear to be over yet. The 200-day moving average (blue-sloping line) has provided support in the past and it seems that it will stop the current decline as well. The declining support line based on 2011 and 2012 highs is also just a bit below Thursday's price level. In fact these two support lines intersect at approximately 62 level and this is where we expect the decline to end. All in all, this means that the correction - seen from this perspective - is about halfway done.

Is the correction in gold over? Not likely.

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Thank you for reading. Have a great and profitable week!

 


 

Przemyslaw Radomski

Author: Przemyslaw Radomski

Przemyslaw Radomski, CFA
Founder, Editor-in-chief
Gold & Silver Investment & Trading Website - SunshineProfits.com

Przemyslaw Radomski

Przemyslaw Radomski, CFA (PR) is a precious metals investor and analyst who takes advantage of the emotionality on the markets, and invites you to do the same.

His company, Sunshine Profits, publishes analytical software that anyone can use in order to get an accurate and unbiased view on the current situation.

Recognizing that predicting market behavior with 100% accuracy is a problem that may never be solved, PR has changed the world of trading and investing by enabling individuals to get easy access to the level of analysis that was once available only to institutions.

High quality and profitability of analytical tools available at www.SunshineProfits.com are results of time, thorough research and testing on PR's own capital.

PR believes that the greatest potential is currently in the precious metals sector. For that reason it is his main point of interest to help you make the most of that potential.

As a CFA charterholder, Przemyslaw Radomski shares the highest standards for professional excellence and ethics for the ultimate benefit of society.

Sunshine Profits enables anyone to forecast market changes with a level of accuracy that was once only available to closed-door institutions. It provides free trial access to its best investment tools (including lists of best gold stocks and best silver stocks), proprietary gold & silver indicators, buy & sell signals, weekly newsletter, and more. Seeing is believing.

Disclaimer: All essays, research and information found above represent analyses and opinions of Przemyslaw Radomski, CFA and Sunshine Profits' associates only. As such, it may prove wrong and be a subject to change without notice. Opinions and analyses were based on data available to authors of respective essays at the time of writing. Although the information provided above is based on careful research and sources that are believed to be accurate, Przemyslaw Radomski, CFA and his associates do not guarantee the accuracy or thoroughness of the data or information reported. The opinions published above are neither an offer nor a recommendation to purchase or sell any securities. Mr. Radomski is not a Registered Securities Advisor. By reading Przemyslaw Radomski's, CFA reports you fully agree that he will not be held responsible or liable for any decisions you make regarding any information provided in these reports. Investing, trading and speculation in any financial markets may involve high risk of loss. Przemyslaw Radomski, CFA, Sunshine Profits' employees and affiliates as well as members of their families may have a short or long position in any securities, including those mentioned in any of the reports or essays, and may make additional purchases and/or sales of those securities without notice.

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