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Is the Correction in Precious Metals Over?

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The situation overall for gold is bullish from the short, medium and long-term perspectives.

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October could be aptly named the month of corrections, as these seem to have been prevalent – at least in the precious metals sector. They are usually perceived as something bad and unwanted, yet people often forget that they create excellent buying opportunities in the bull market. And we – precious metals investors – do not doubt that this is a secular bull market and that precious metals prices will inevitably move up in the future, due to many fundamental factors that we already discussed in the past – unfavorable economic situation in the US and in Europe, open-ended QE program, and many more.

Now that the correction seems to be over we can truly appreciate the opportunities it created. Let us move to the technical part of today's essay to make sure that the situation is indeed favorable. We'll start with gold (charts courtesy of http://stockcharts.com).



In gold's very long-term chart, we see that a bottom formed right at the 300-day moving average. This has been seen a number of times in the past, and history has clearly repeated here. Many unusual factors have been in play recently, most notably the open ended Quantitative Easing and European debt crisis and the US elections. This is something that is noteworthy especially if you have begun to doubt technical analysis' usefulness in the current macro-economic environment. Still, history has repeated itself, and technical analysis principles are present. It continues to pay off to follow them.

RSI levels are now moving higher and this – combined with their non-extreme readings – suggests higher gold prices in the following weeks. The yellow metal is not making headlines as it was in early October and this is good news for investors waiting to open positions and those who – like us – are already long. There appears to be clear upside potential given that we have been through a period of consolidation greater than one year and have charts which appear to be very bullish right now. Prices appear ready to move higher, consolidate when reaching the early October highs, again rally to previous 2011 highs, and consolidate once again. We then expect to see further strength.
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No positions in stocks mentioned.
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