Wednesday, November 4, 2009
Ready For A Correction?
When the current short-term bullish spike ends (in the next 1-2 weeks?), we are due for our first "major" correction in this intermediate-term bull leg in Gold in my opinion. It is not scary or bad if one anticipates its occurrence and understands that it is a necessary phenomenon if this bull leg is to continue higher. Could I be wrong and could we simply spiral higher in a parabolic manner for the next 2 months? Sure. Anything is possible.
But right now, Gold is getting to the point where it needs a rest. Such "major" corrections in the Gold price in the midst of an intermediate-term (i.e. multi-month) rally tend to last 4-8 weeks. No fun at all when one feels as though the party has just started. We may hit $1150-$1200/oz. or so first, but I think a multi-week correction is due to begin within the next 0.5-2 weeks. I only mention this now so that people are not disappointed or scared when it occurs, as it is normal and "healthy."
It is also not a good time to put new money to work in this sector for now, unless one selects "beaten down" stocks (like KGC or undervalued junior miners) in which to invest new funds. One should wait for a pullback to put new money to work in the Gold sector. If history is a guide, we will get one soon. After this intermediate-term correction, we should remain in the current strong Gold sector uptrend until the March time frame (at least - the seasonal top is typically in the March to May time frame).
These are all just academic musings, as the market will do what it wants to do. I for one am hoping for a multi-week correction in the sector to start by the middle of the month, not because I enjoy being bored but because I want this rally to remain sustainable over the next several months. Corrections provide the energy needed to continue a bull run as they allow market participants to adjust to higher prices and shake out weak hands and short-term momentum traders.
Remember the important issue, which is a big one for Gold bulls: $1,000/ounce is now a psychological floor in the price of Gold instead of a ceiling. Once you can conceive of $1,000/oz. as "normal," a rise to $2,000/oz. is feasible and plausible. Central banks (i.e. India) are happy to buy Gold at over $1,000 oz. - think that isn't a big deal? Thinking longer term, there is nothing but blue sky ahead for the Gold sector. Thinking shorter-term, continued rising prices for Gold higher over the next 0.5-2 weeks followed by a multi-week normal correction in Gold, the senior Gold stock indices and smaller cap Gold stock market leaders seems likely. It will be just another buying opportunity for those so inclined in my opinion.
Keep in mind that I am not advising any Gold bulls to sell and I am not saying the correction is starting today. We could easily hit $1200/oz. first before the correction begins and your favorite Gold stock could go up 10-50% before the correction hits. I am simply putting this info out there now while everyone is having fun and making money, as I don't want people to become weak hands at the wrong time just because of a normal correction in the sector. The uptrend looks healthy and technically perfect. There are no concerns here. There is simply the reality of markets: nothing moves in a straight line and, if it does, it may be the final exhaustion move that ends the trend for quite some time.