If you aren't sure where short term market direction was going, you do today with the $20 drop in POG. Gold had traded pretty much positively correlated with the markets until May when the Euro and fear hit the skids and spiked gold out of its cyclical correction period to form a rising wedge that ultimately failed when the fear that the Euro was going to fall flat this summer eased.
Gold went from its traditional inflation trade to a hedge against currencies in a day and was solely trading as a currency on Euro fears. What this all means for the markets and gold is that the currency hedge trade is now unwinding with the $20 drop in gold today signalling that there is further strength in this upswing in markets as well as riskier currencies such as the Euro. I would set at least an 11,000 target on the dow and if markets react positively to earnings we could go to new 2010 highs, possibly heading towards a future head and shoulders pattern. I have heard a double top formation but I don't think the markets will flip flop that quick.
Earnings are just too good to ignore.
One thing for sure is that if the markets do resume a bullish trend, gold will hold stable and resume its inflationary bullish trend. Another thing for sure, is if markets do fall apart because of high debt and impending default by sovereigns, gold will go through the roof as a safe haven currency. So while we are in this not so sure where we are going market, gold has absolutely no velocity, but is in a win win situation whatever way the markets take when they take it.
So until the markets get a definitive direction, POG could wane a bit further. POG has not broken the 200MA in a long while so if the price decline does not abate at the 200MA and closes below the $1130 level I would expect further price declines to below $1100 and wane for another month. Markets can move up and gold won't as long as markets don't believe the rally.
In these conditions, the majors like G and ABX got a long way to go to correct still and some of the advanced development projects prices will wane. The best place to be over the summer in the gold sector is the explorers as this is the season that discoveries are made and deposits and drilled out like swiss cheese. Explorers with successful drill programs adding value are the best place to be. Any fall in price below the $1100 level will be an excellent place to time a buy in your favorite gold stocks. But until it breaks the 200MA in a forceful way I will keep my buy target of $1140 in place.
At this point in time I really don't think the markets really know where they are going with all this confusing data. Bad domestic economic data but awesome earnings.
And the funny thing?!?! As an aside... US corporations profiting off strong global growth, distribute profits to a very few wealthy Americans through dividends and stiff the average american Joe out of a job in the process. The wealth gap is widening if US corporations don't start spending on US soil.
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