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Gold Correction Continues To Develop As Expected

|Includes: GDX, SPDR Gold Trust ETF (GLD), SGOL

Gold closed sharply lower today, retreating further from recent intermediate-term highs and moving down toward support at the lower boundary of the uptrend from May. In early October, we noted that the power uptrend from August was rising at an unsustainable rate and predicted that it would likely be followed by a potentially violent overbought correction. The anticipated correction commenced when power uptrend support was violated last week and the decline has developed as expected since then.

 

 

As we note often, short-term price behavior only has meaning when it is analyzed in the proper context afforded by the long-term view. Although gold prices have moved violently lower during the last two weeks, the consolidation formation on the weekly chart that we have been monitoring since early September continues to track the bullish scenario that we outlined at the time, favoring an eventual resumption of the long-term uptrend.

 

 

With respect to intermediate-term cycle analysis, prices have moved lower following the formation of the second half cycle high (NYSE:HCH) of the cycle from May.

 

 

If the forthcoming intermediate-term cycle low (ITCL) forms well above the previous low in May and it is followed by a strong move above congestion resistance in the 1,795 area, a breakout to new all-time highs would become highly likely in late 2012 or early 2013. Therefore, although the short-term outlook is currently bearish, the secular uptrend may be preparing to resume, so it will be important to monitor price behavior closely during the next several weeks for the next signals with respect to long-term direction.

We will identify the key developments as they occur in our daily market forecasts and signal notifications available to subscribers.

Disclosure: I am long SGOL.