Gold Correction Implications For The Path Forward

As I pen this article, Gold and gold stocks may be starting to form a low.

Over the past four trading days, GDX and GDXJ have dug in and formed bullish reversal candles, while Gold has traded lower and tested its 38% retracement at $1690. 

Gold traded as low as $1683 on Friday. I would love to see Gold test lateral support at $1675 or even quarterly support at $1660 while the gold stocks continue to hold. That would strengthen the signal of a low. 

The good news is we are approaching a low and are likely to rally in the spring.

However, this correction has gone further and longer than I anticipated.

Last summer, when the correction began, I gave subscribers the worst-case scenario target of $1690. I expected GDX and GDXJ could bottom around $33-$34 and $48-$50. 

I expected 2021 would be a grind, but I also anticipated it would be more of a consolidation than a severe correction. 

As a result, the historical comparisons have shifted.

The current declines in the HUI and GDXJ, which are around 30% top to bottom, somewhat resemble those from 2004 and 2016. During those corrections, GDXJ and HUI corrected 38% and 37% in 2004, and then each corrected 42% in 2016. The length of the three corrections was similar.

As for Gold, there is no single best comparison, but the 2016 and 2004 corrections stand out.

In the chart below, we plot, on the current correction scale, the 2016 to 2018 correction, an average of six historical corrections (including 1975-1976 and 1999-2001) and three comparable corrections (2004, 2008, 2016-2018). 

As you can see, the only outlier is the 2016-2018 correction, which began its next impulsive advance in September 2022. The others did so in early 2022. 

(Click on image to enlarge)

The similarity to 2016 is rising yields caused the correction, but the difference is the Fed was hiking rates until the end of 2018. At present, the Fed will not hike rates anytime soon, and there is also the added potential for more fiscal support. 

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Monica Kingsley 1 month ago Contributor's comment

Hi Jordan, I agree and likewise have been writing myself daily, that this gold (and miners) correction is taking a bit too long, given the more or less mildly bullish signals we had been served, even in the seasonally strong month of February. I also think we're closer to the bottom than the permabears appreciate.