Thursday, December 15, 2011

Panic selling often points to imminent reversal #gold

The psychology around this precious metals bull market is truly fascinating. Over the last week Gold and Silver's pummeling has bought out the precious metal bears, the top callers, the bubble bleaters... suddenly everyone's an expert and everyone has an opinion on the reasons for the fall.

The drop below the 200 MDA has some traders frothing at the mouth for further falls with Gold only having fallen significantly below this level during the 2008 price crash (over the course of this bull market).

With deflationary pressures building we could see a repeat of this sort of correction (we are already 2/3 of the way to a correction of 2008 magnitude), however at least for the short term Gold looks like it could be putting in a short term bottom at these levels.

Panic in the Gold market as it rockets to the upside or capitulates to the downside tends to be marked with an increase in volume. You can see on the chart below (GLD SPDR) that the volume has built to the usual capitulation levels.

In my opinion we are probably very close to putting in a short term bottom and Gold will reverse back over the 200 MDA. Of course I could be wrong, I don't trade the Gold/Silver markets short term so have nothing to lose/gain either way and even if it does reverse back over the 200 MDA there's no guarantee it will stay there.

Corrections of this magnitude don't come around that often in a bull market. If your expectations for the medium/long term are that Gold and Silver will be much higher then a reasonable strategy would be to buy the dip (average down, not all in).


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