Gold Correction Update II

In the chart above, GLD, the ETF for gold, briefly penetrated its trend line only to fall back below. I had given my reasons for predicting this behavior here. This brief penetration often happens in the terminal stages of an uptrend. This price structure therefore suggests that gold will correct.

As the anticipated correction develops, more clues will be given towards the area in which the correction will end. Tentatively, one possible target is the 50 week moving average, which is about 130 on GLD.

Gold Correction Update, and the US Dollar

Although gold prices have penetrated the trendline shown in the weekly chart below, a brief penetration often occurs during a terminal move. If prices fall back below this trendline, that will be a strong signal that a significant correction in gold will take place.

The US Dollar (weekly chart) is near a multi-year low. Its devaluation has partially fueled gold prices; this fuel is running near empty. A lot of bad news on the dollar has been discounted already.

Gold-linked stocks are generally a leading indicator of gold, the commodity. The former has yet to surpass its December 2010 high although the latter has done so by over 7%. Moreover, the prices of gold the commodity, adjusted to be unaffected by changes in the value of the US dollar, have also yet to surpass their December 2010 highs. Show below is adjusted gold plotted against the gold miners ETF; the price of the commodity is below those two.

All of this evidence suggests that gold will correct.

Gold Prices To Correct

Above is an arithmetic, weekly-bar chart of the Gold based ETF, GLD. Prices are very close to reaching the trendline. A correction will likely ensue after that contact.

Will Rahal gave a minimum 1500 target, based on 6 times the 2001 low of $250, observing that a six-fold appreciation often occurs in a given period's favored asset class. This round number, and the 6 X phenomenon, is another reason to expect a correction.