In case anyone is wondering, the long-term bull for gold remains intact. However, it sure doesn’t feel like it. The daily trend is down, the weekly trend is down and the monthly trend is down. So how can the long-term bull remain intact? It is based on the long-term uptrend line from the 2001 lows near $250. Thus far, the steep correction that got underway in September 2011 has not broken the uptrend line. But it is testing it.
The long and steep correction in gold since September 2011 has been strange to say the least. Eric Sprott the founder of Sprott Asset Management LP and a well-known gold investor was asked recently “How did we miss the top of the market in 2011? Why wasn’t someone ‘pounding the table’ to sell precious metals and precious metals equities?” Eric’s response was “With the benefit of hindsight, anyone can say that we all should have been selling in ’11. But we stayed in because the facts at the time seemed indicative of more growth, not a peak and subsequent decline.”
I held a similar view at the time and continued to hold that view through the next 15 months of a back and forth correction that ranged roughly from $1,550 to $1,800. The Fed ended QE2 in June 2011. The stock market reacted by going into a bit of a free fall in August 2011. Gold did not fall at least initially. Gold kept going up even as the stock market fell. Gold made a top on August 23, 2011 then put in a mini-plunge before rebounding back to make a secondary slightly higher top on September 6, 2011. What followed was a nasty plunge into October 2011. QE3 was announced on September 13, 2011 shortly after gold topped. But gold still fell. Many of us believed another round of QE was bullish for gold and that after a correction gold would resume its upward path. Gold put in a strong run-up towards $1,800 into February 2012 then following another pullback another strong run-up towards $1,800 was seen into October 2012. Gold did not return to the highs of August/September 2011 but appeared up until that time to be forming a classic ABCDE type of symmetrical triangle correction. In hindsight, was something more at play?
Source Safe Haven