Gold Run Over?
The price of gold corrected 10% over the last few days. Here are the reasons why the run is not over.
1. First, a correction like we just got is actually very healthy. I would be more concerned if we didn’t have a correction and continued going up higher and higher. Corrections are needed to shake out weak hands and leverage and help to create a sustained bull run over longer than mere days and weeks.
2. The fundamentals that have supported this run are firmly in place. In fact, they are more apparent now than they were a year ago when people actually thought the economy is rebounding. Nowadays, people essentially know that the economy isn’t rebounding sufficiently and more people think it might be sliding back into recession. The government response to the weak economy will always be to debase the currency.
3. Uncertainty is still extremely high. Recently, the focus has been on Europe. There are still many more waves of uncertainty to hit Europe until the current crisis comes to a climax. We haven’t seen the end of the problems.
Interestingly, tomorrow (Friday) is Ben Bernanke’s Jackson Hole speech, and he’ll undoubtedly move the markets, since everything hinges on the magic words of our fearless Fed chief now. What a market, right?
I tend to think Bernanke won’t announce any further easing at this point and the market will fall a good bit since it has seemed to be anticipating more QE.
We’ll see. This correction might be a good time to load up your gold position.