Gold sold off big Wednesday. It's not surprising, or even worrisome. Gold and silver WILL continue to experience periods of volatility, frequently to the downside.
But let me remind you: gold price movement tells us way more about the dollar over the short-term than it does about gold over the long-term. In other words, the fact that gold fell today just tells us that the dollar index rose.
You can see in this 6-month chart of both gold (in gold) and the US dollar index (in red) that gold and the dollar tend to move inversely to each other over the short term.
It's not a perfect correlation, but it's pretty reliable.
The dollar rose yesterday and today mostly because Ben Bernanke didn't announce further quantitative easing (AKA money printing). Apparently that's a good enough reason for the dollar to pop.
And yes, gold prices are falling.
But look at it the other way around. Today, your dollar buys more gold than it bought yesterday. If you have any doubts about the long-term sustainability of the gold trend, then you need to look no farther than the unsustainable debt load our government currently carries.
Yes, the debt currently sits at about $15.5 trillion. But that doesn't include any of our future liabilities - which conservatively add another $100 trillion over the next few decades. How will we pay for these liabilities on top of our already staggering $15.5 trillion?
We have little choice to either outright default - or to print the difference. There's no doubt that we'll done one or the other at this point. It's just a question of which. I'm leaning towards the printing avenue, just because it's the path of least resistance.
They don't even have to call it printing. They can call it quantitative easing or accommodative policy, or purple monkey dishwasher - whatever they want.
So, I think we'll see much higher gold prices down the road. The question for now is what's the best (lowest) price we're likely to see in the short term?
I think it's likely that gold will briefly touch the $1,610 level before resuming the uptrend.
That's a short-term inflection point that we've tested twice in the past 6 months:
It would also be below the 200 day moving average. Over the long term during this bull market, anytime you're able to buy under the 200 day moving average, you were typically buying during a multi-month and sometimes a multi-year low.
I don't advise trying to time your gold purchases. It's tough to do it successfully during a strong uptrend. It usually makes sense to just buy at regular intervals, giving yourself a good average price.
But if gold hits $1,610, that would be a great buy price for this short-term correction.