Gold: A New Type Of Price Correction

Is the latest tiny price correction in gold already done? 

 Double-click to enlarge this daily gold chart.  

The uptrend looks majestic, and especially so in the face of the dollar’s strength against the euro and the yen.

Whether gold rallies from the current $1306 support zone or from $1280 is not important. What’s important is the overall strength of the market, both fundamentally and technically.

A staircase uptrend pattern (in place now for gold) is an indication of a very healthy market.

Double-click to enlarge.  

The big technical picture for gold is also glorious!

On the fundamentals front, the European economy is rolling over faster than America’s is right now. This situation is positive for gold. Europeans are nervous, especially in Germany, and they are steadily putting money into gold and physical gold ETFs.

The dollar is strong against the yen because of the rally in global stock markets. That rally is happening in the face of fading US corporate earnings because of the actions of the US central bank.

Stock markets initially tend to rally as the US business cycle peaks and the Fed stops raising rates, but institutional investors soon become concerned that the Fed’s about-face is related to more serious concerns about the economy. Value players have sold out and many money managers are now in a “sell the rallies” mindset rather than “buy the dips”.

The Fed’s change of stance is good news for gold but not so good news for the stock market (except in the very short term).  Rates have barely risen off the floor despite this being one of the longest economic upcycles in the history of America.

The upcycle was long in terms of time but horrifying in terms of actual growth. Arguably, the biggest real economy growth has been in the part-time jobs market. It’s also plausible that there would not have been any growth at all without the massive increase in government debt.  

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