The Nature of the Current Gold Correction

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...The “Inflationary Gold Run” is still ahead. Monetary inflation, which is the basis of today’s financial system, takes time to transform to price inflation evident in the CPI or PCE figures, often several years. This is one of the reasons why we remain convinced that the precious metals bull market has a long way to go...

...The “Inflationary Gold Run” is still ahead. Monetary inflation, which is the basis of today’s financial system, takes time to transform to price inflation evident in the CPI or PCE figures, often several years. This is one of the reasons why we remain convinced that the precious metals bull market has a long way to go. Gold is yet to hit its all-time highs when adjusted for inflation (around $2,500/oz). When fears of inflation hit the Street, gold will easily reach or even surpass its inflation adjusted highs.

Additionally, gold bull markets, which tend to occur at the same time as the commodity bull markets, typically last an average of 20 years. This means that by even the most conservative estimates, there is 5-7 years left in this bull market (more optimistically, still 12 -15 years to go).

Gold’s Behavior during USD Rallies

Many analysts are now making a bullish case for the US dollar. Financial media is full of dollar-bullish headlines. By association, these analysts and journalists automatically assume that gold is in for some tough times. Some even go as far as to state that gold is dead. Although, we will not dispute a general inverse correlation between gold and the US dollar, we do believe there is much more to the story.

Gold typically leads the US dollar and a beginning of a correction in the metal usually predicts a rally in the greenback. When the dollar responds and starts rallying, gold experiences a few more weeks of a severe correction, bottoming soon thereafter. Generally, when the USD is in an uptrend, this does not necessarily mean that one should be bearish on gold.

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