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Tuesday, January 22nd, 2019 - Buy Gold - Bringing you trusted gold news and gold investing information since 2006

Gold’s Correction Might Be Longer Than Expected

Those who were calling a bottom in gold during the last week certainly appear prescient after today’s pop higher. The most common reason for this bottom calling was a big drop in sentiment. However, I think it may be premature to call an end to the correction in gold and that we may be in for a longer correction or an extended period of sideways movement. We may, perhaps, have a small rebound, but I don’t believe it will take gold to new highs in the near future.

The primary reason I think gold’s correction or sideways will last considerably longer is that gold has traded above its 200 DMA for a full two years. While the ascent has not been extremely rapid and was punctuated by several corrections, it has been quite large with an over 50% rise.

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Another reason gold may be moving sideways for several months is that silver was more than 40% above its 200 DMA at its recent peak. When silver has reached this overbought in the past, both silver and gold have generally struggled for more than six months. Since it was only one month ago that silver peaked and two that gold peaked, I think it will likely be several more months before gold hits new highs.

(Click to enlarge)

On the other hand, I do believe that gold is in a bubble and may, near the eventual peak, continue to rise without regard to overbought conditions. If we are entering this stage of the bubble, then there is no saying what may happen. Nevertheless, there has not yet been any evidence that the gold market has become completely irrational and I think the correction will last longer than many expect.

Disclosure: Author long DBP and GLTR

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