Dust flux, Vostok ice core

Dust flux, Vostok ice core
Two dimensional phase space reconstruction of dust flux from the Vostok core over the period 186-4 ka using the time derivative method. Dust flux on the x-axis, rate of change is on the y-axis. From Gipp (2001).

Friday, October 29, 2010

Gold needs a correction

Bull markets need to rise the farthest with the rewest people on them. So if the gold market is to remain in a bull market, something has to be done to cool off the market.

These short sharp drops of $50 or so just aren't doing it anymore. The price and enthusiasm comes roaring back each time.

In the 1970s, during gold's run from $35 to $800, there was an 18-month interlude where the price was cut in half (from about $200 to $100). I've thought for a few years now that a similar correction has to occur sometime during this bull market in gold. Now, however, I think that the level of patience in the market in general is such that only half of such a correction is necessary--say 25% over nine months.

This could be achieved by a slow grind downward at a rate of $50 per month for nine months.

Can you imagine the mindset if the price of gold were $900 in nine months time? The gloating on financial TV. That would definitely look like the end of the bull market. And that is the perception that has to come.

Of course, it wouldn't be a straight grind downward. It would be punctuated by brief $50 to $100 rallies to suck speculators in repeatedly and destroy them. That's how you destroy speculators.

So if such a correction is coming (it may or may not be starting now) what is the plan?

First of all I never sell any physical metal. In previous selloffs I find you can never get it back at the lower price.

I am building cash in stock trading acccounts, but holding core positions. Just selling a little in to strength, and occasionally buy on weakness.

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