update on Gold's Correction

http://theshortsideoflong.blogspot.com/2013/09/golds-correction.html

Chart 1: GLD ETF holdings portray a picture of panic in the PM area

  Source: Short Side of Long

I received a lot of questions regarding the precious metals sector in recent weeks, esepcially since the relief rally has stopped.

This years correction in the precious metals sector has been very notable, and also quite welcome (if you are planning to invest into the sector). After all, Gold rose for 12 annual years in the row and was eventually due for a down year (or two) just based on common sense and extreme overbought levels in the monthly charts.

While many investors claim that the bull market for commodities, and precious metals in general, is over - majority of these investors were the same ones who missed the huge gains over the last 12 years in the first place. In other words, even a broken clock can be right twice a day...

Chart 2: Three major corrections during a secular bull market in Gold

  Source: Short Side of Long

The current correction in Gold, which from peak to trough has declined almost 40% at one point, is probably not over just yet. It is rare for markets to bottom on a V trough, similar to what we saw in early July. And while some investors will point out that the 1975/76 correction recovered from a V trough, I would like to add that back then, the price of Gold was extremely oversold relative to current conditions. Prices were down almost 50% in just over 400 trading days.

Either way, I am expecting Gold to build a base from which a new bull market rally will start in due time. These patterns and bases usually look like double or triple bottoms of some kind, so I urge investors to stay patient and let Gold do its thing. This also means that there is a possibility of prices breaking towards new lows  temporarily.