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Is the correction in the bullion market firmly in place?

*Barron's, by Michael Kahn, August 26, 2013

”The rear-view mirror classification of a bull market being a 20% move from a major low is less than useful as it does not tell an investor what to do now. In the case of gold and its 18% move up from its June low, however, it does leave the door open for further gains and an attempt to reach that magic threshold.

To steal a name coined by Ian McAvity, editor of the Deliberations on World Markets report, auric insects, a.k.a. gold bugs, are alive and well.

Last Friday, gold broke out to the upside from a one-week pause in what was already a two-month rally. It also moved above the trendline drawn from February of this year for a breakout of a different kind. And making it even more exciting for gold bulls it confirmed a third type of breakout seen two weeks ago when the metal moved above chart resistance defined by the April and May lows and the July high.

To sum up, the market negated its June breakdown and now has its sights set on a much more important feature – the former price floor in the $1542 an ounce area (gold traded just shy of $1400 Monday afternoon). If gold can reclaim that level, it would be a 30% gain and a bull market by definition.

It is difficult to think that a bull market of this magnitude will run into a ceiling, but that is exactly what will happen if and when gold reaches $1542, plus or minus $10. After trading sideways for two full years, and despite multimonth rallies and declines along the way, the market has a huge amount of overhead supply at that level. It will take serious effort for the bulls to overcome this barrier, so it is important to keep the current advance in context.

The SPDR Gold Trust exchange-traded fund (ticker: GLD) is in similar shape with upside potential to its former support floor near 148.50 (it traded at 134.63 Monday afternoon).

Silver’s near-term support and resistance levels are not as well defined, but resistance overhead from its 2011-2012 lows is at 26.25.”


*This information is solely a highlight of the opinion of a third-party publication and is incomplete.  Please subscribe to this publication for the full and timely opinion of the author and call a Monex Account Representative for any additional up-to-date information. This is not an offer to buy or sell precious metals. Investors should obtain advice based on their own individual circumstances and understand the risk before making any investment decision.

Monex Bullion Investor