Gold Plummets... So Why Are Gold Bulls Happy?

I’ve never been so happy to see gold drop $100 in a day.

Of course, I’ve never been happy at all to see gold drop like that, before today.

In a sign of how weird and volatile these markets are, I clicked on the MarketWatch tab in my browser this morning, only to see it hadn’t updated since I last viewed it yesterday. I couldn’t help but notice it showing the Dow down 600 points and gold up $108.

A quick click to reload the page, and those values immediately updated to the Dow up 550 points and gold down $108!

Beautiful symmetry, and something that would normally send gold bugs banging their heads against their computer screens.

But not today...because the recent run in gold, punctuated by $100 up days, had gotten parabolic and unsustainable. We have been needing a cooling-off to keep the bull market healthy, but instead, we kept getting price spikes.

Rhetoric And Reality Meet Head On

Of course, the precipitating factor behind both the fiery rally and the smoking nose dive was the off-the-cuff policies and pronouncements from the Trump administration.

The massive tariffs on China and the threats to fire Fed Chair Powell created enough uncertainty to top off China’s gold buying with safe-haven purchases from individuals and institutions across the globe.

And the removal of those factors after yesterday’s market close, with Trump announcing “no intention” to fire Powell while promising to be “nice” with China, led to the steep sell-off in gold.

Also encouraging, silver has jumped over a dollar, despite gold’s decline.

So does this mark the top in gold?

That was the question posed to me by a member of the financial media this morning, and this was my reply:

I had predicted a resolution of the Trump trade tensions would likely spark a price correction in gold and it seems that this, along with his easing up on the pressure on Fed Chairman Powell, did the trick. Generally speaking, despite what the headlines may trumpet in the midst of a conflict, peace does eventually break out, and normalcy returns to some degree.

However, much if not most of the buying in gold during this new bull market has come from central banks, and it’s hard to imagine deeper pockets and stronger hands than these. The new trade war has made America’s trade partners leery of the dollar, but that distrust was initially seeded a few years ago with the U.S.-led sanctions against Russia.

The current level of wariness will not abate with any reconciliation with the Trump administration. It will take years, and successive presidential administrations, to restore the previous trust in America and the dollar.

Thus, gold’s price correction may have ended this furious, nearly parabolic run, but it doesn’t spell the end of this bull market. The severity of the drop was likely due to trend-following traders jumping in with shorts, but I predict that they’ll be very quick to cover once the big buyers return. For many fundamental reasons, this gold bull market has years to run.

So gold bugs and bulls should take the advice of that catchy tune: “Don’t worry — be happy!” This correction in gold was inevitable and desirable. And now we’re back on firmer footing for more gains to come.

To get Brien Lundin’s ongoing commentary on the markets at no charge, click here to subscribe to his free Golden Opportunities newsletter.

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