Gold Prices Plunge: No "Mystery" To The One-Day Drop
On January 4, 2011 a small group of financial strategists hinted of a precious metals conspiracy. I call it "The Magic Bullion Theory" and it goes something like this:
On the morning of January 4, a curious shot was fired out from a grassy knoll surrounding the gold market, piercing through prices and causing their value to plunge more than $40 in a matter of hours.
But according to this "commission" of experts, there was no lone assassin of gold's bull trend. To them, the 3%-plus, one-day selloff just sort of, well, happened. Here, the following January 4, 2011 MarketWatch story fills in the blanks:
"Gold's Mysterious Drop: No Obvious Catalyst. Sometimes a security's price will drop for no reason at all... It's beginning to look as though that is what's the case for gold... as factors that would normally be suspected to have caused a drop as big as this one had... good alibis."
Is that supposed to be a reassuring explanation for market behavior? To know that no matter how careful your investment choices, how calculated your risk, and how committed to gathering all of the facts before establishing a trading position... Despite all of those precautions, the ground beneath the market can open up at any moment without warning?
The thing is, there was both warning and cause for gold's recent decline -- just not from the market's fundamental backdrop. In the context of Elliott wave analysis, however, a very different story emerged, namely this:
On the day before the January 4 drop-off in gold, the January 3 forecast by EWI's Metals Specialty Forecast Service issued this bearish alert:
"I think we either have to top and reverse lower very soon... I will use a topping arrow for today. We are a critical short-term juncture. I suggest watching very closely to see if a sharp reversal might occur here at any time."
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