Is A Gold Correction Coming?
On August 15 of this year I sent out a special
bulletin to my subscribers recommending the purchase of gold
stocks. I believed at the time that gold had bottomed and
would rally into the end of the year.
When I bought I had a plan to sell - I either would sell
if gold and the stocks made a climactic exhaustion top or
if the stocks began to lag the price of gold. The latter began
to happen this past week. Although gold and the XAU both went
higher on Friday, the fact that the stocks are now lagging
gold tells me that a top is likely being formed.
The chart below shows you the price of the XAU divided by
the price of gold. When it is rising the stocks are outperforming
the gold price and when it is falling the gold price is leading
the stocks. As you can see the stocks began to lead gold in
August and started to lag gold last week.
The Relative Strength Relationship Between the XAU and Gold
Has Been Consistent
The relative strength of the XAU and gold is in the bottom
section of this chart. Notice that important bull runs in
gold began when the stocks asserted leadership against the
This happened in April of 2003 and in August of 2004. It
is one of the reasons I got bullish again in gold this past
You also should notice that the bull runs came to an end
when this leadership position switched. This happened in December
of 2003 right before gold stocks corrected and is starting
to happen again.
I think we are likely to see some sort of correction in gold
stocks before we see them make new highs and begin another
big run. A drop of 10-15% from here in the XAU would not surprise
There is a precedent for this. In November and December of
2002 we saw the gold market put on the same type of rally
it has now: Gold made a new 52-week high and broke out while
the gold indexes rallied but failed to break their 52-week
This happened back then and is happening now. If the pattern
continues, then gold and mining stocks will correct into January
and next year the XAU and HUI will recover and go to new highs
before gold does. Such a scenario would lead to a monster
gold rally, larger than we have seen so far in this gold bull
We're still in a secular bull market in gold. Phase II is
only beginning. But all bull markets have temporarily dips
and pullbacks. Remember the wall of worry. A correction will
build it back up again and cause many gold bugs to lose their
resolve, but prudent investors must take advantage of any
A correction in the near future will take a lot of people
by surprise, but it will likely prove to be the final dip
before the next big leg up in the XAU.
To find out what gold stocks Mike Swanson holds
and plans on buying subscribe to his free Weekly Gold Report
Michael Swanson is the President
of TimingWallStreet, Inc., which owns WallStreetWindow. WallStreetWindow
contains the opinions of Swanson is provided for informational
purposes only. Neither Swanson nor TimingWallstreet, Inc.
provide individual investment advice and will not advise you
personally concerning the nature, potential, value, or of
any particular stock or investment strategy. To the extent
that any of the information contained in this article may
be deemed investment advice, such information is impersonal
and not tailored to the investment needs of any specific person.
Past results of TimingWallStreet, WallStreetWidow, or Michael
Swanson are not necessarily indicative of future performance.
Michael Swanson, entities that he controls. family, and associates
may have positions in securities mentioned in this article
of on WallStreetWindow and may close them at any time.
TimingWallStreet, Inc. does
not represent the accuracy nor does it warranty the accuracy,
completeness or timeliness of the statements made on its web
site or in its email alerts. The information provided should
therefore be used as a basis for continued, independent research
into a security referenced in this article so that the Subscriber
forms his or her own opinion regarding any investment in a
security mentioned in it. The Subscriber therefore agrees
that he or she alone bears complete responsibility for their
own investment research and decisions. We are not and do not
represent ourselves to be a registered investment adviser
or advisory firm or company. You should consult a qualified
financial advisor or broker before making any investment decision
and to help you evaluate any information you may receive from
Consequently, the Subscriber
understands and agrees that by using any of TimingWallStreet
services, either directly or indirectly, TimingWallStreet,
Inc. shall not be liable to anyone for any loss, injury or
damage resulting from the use of or information attained from
TimingWallStreet or any of its services.