Gold Resumes Correction

A rally in the dollar has taken hold; silver failed to breakout and gold has sliced lower below $1800. Although I did not expect gold to break out this year, I have recently been more sanguine about the prospects of a bullish consolidation.

Last week I noted, but misinterpreted, the correction analog. The post-rebound decline appears harmless (second arrow), but we forgot a few things. The post-rebound decline retraces the majority of the rebound, and it sits around $1800 at the very end of this year. 

Also, because it is an average, it has smoothed out all the volatility of each correction. The average secondary decline (removing extremes) would take gold below $1675. 

Average of 6 Corrections: 1975-1976, 1999-2001, 2004-2005, 2006-2007, 2008, 2016-2018

Conventional technical analysis argues similarly that gold and silver aren’t breaking out this year. Gold sliced through important support around $1775 to $1800. It is oversold on a short-term basis and should begin a bounce next week. However, we should anticipate a potential test of the spring low around $1675. Silver has initial support at $24, followed by a confluence of strong support at $22. 

Gold & Silver Weekly Candles

We’ve argued that gold is building the handle on a cup and handle pattern and that it would not break to the upside this year. Even in our most recent article, we highlighted the correction analog, which showed gold would not start moving towards a breakout until the very end of the year. 

In my experience, big money is made by buying fundamental quality with upside and holding it for a few years. Trading in and out, while enticing, is dangerous and a good way to underperform over the long run. 

The good news for those on the sidelines is that you will be able to buy quality at a lower price and with increased upside potential. Companies with 3x to 4x upside now could have 4x to 5x upside potential. 

Disclaimer: and TheDailyGold Premium are not investment advice. The website, email newsletter and premium ...

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