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Is the Gold price ripe for a correction?

I’ve been watching the Gold price carefully now for the last couple of months. And although I am not the foremost expert on this market, I have been following it closely for the last decade or so. And if I had to bet where I think it is going, I think it might be ripe for a correction, in the next few months.

Gold has been moving strong to the upside, ever since the Corona crash ripped the World into pieces, about two months ago. And actually it has been ripping for almost a year now. But the indicators, that gave rise to the current uptrend, now suggest that Gold could be ripe for a correction. Before its longer term uptrend continues, into the 2020s.

The strength of the Gold price

Since the middle of 2019 Gold has been moving in a strong uptrend, that has taken it from below 1300 Dollars to above 1700 Dollars. But it might be ripe for a correction. Because the professionals have silently decreased their Gold-positions, in the last months, while the speculators are still net long. Perhaps indicating that the speculators might get caught on the wrong side in the next Gold trade.

Bullish indicators have now turned bearish

Several indicators related to Gold suggest that it could be in for a major correction, in the next months. Because the smart money have decreased their net positions in the metal. Moreover, the move up is not verified by the Gold mining stocks.

What indicators have turned bearish?

There is a divergence between Gold miners and the price of Gold. The Gold miners are not moving up as fast as Gold itself, and the junior Gold miners are moving even slower, than the large miners. This indicates that the participation of the big money is not really there. The GDXJ/GDX-ratio is now going down, which is a sign that Gold might follow the juniors and Gold mining stocks down:

The GDXJ/GDX-ratio divides the junior Gold miners by the larger Gold miners. When it is going down the larger miners are moving up quicker than the juniors. This is a sign of low participation, in the uptrend, and might signal a divergence and coming reversal. – Chart from TradingView

Commitments of traders and speculators show that commercial money managers now have among their lowest net positions ever, in Gold.

This chart shows the Gold price in black, the speculators in blue and the commercials in green. The commercials have their lowest net positions since the start of the chart. – Chart from Cotunchained.com

How and when will this play out?

The Gold market often seems to go sideways during the summer months. Therefore, it is hard to say exactly when a correction could occur. We could probably see a scenario where Gold sells off during the summer months, while the Dollar might become stronger because of its reserve currency status and inverse relationship to Gold. The Dollar might also benefit from the Corona crisis, and Oil crash. But this could also play out for a longer period of time.

Conclusion

Whether Gold crashes here, or keeps going up, I believe a correction could probably be good for Gold at this point. Because it might lead to a stronger and more substantial uptrend, with better participation, in the long run. I am not a proffessional on the Gold market. But for the time being, that’s my view on Gold.

The long term chart of Gold still looks promising. But in the short to intermediate term, I think it might be in for a much needed correction. I do have long positions in Gold.

Disclaimer: All information found on this site, ideas, opinions, predictions, commentaries are for informational, entertainment or educational purposes only and should not be construed as personal investment advice. While the information provided is believed to be accurate, it may include errors or inaccuracies. I will not and cannot be held accountable for any actions you take as a result of what you read in here. Use the information at your own risk. I am not your investment advisor. Consult a licensed financial advisor before making any investment decisions.

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