Market Timing Gold: You Can’t Go Both Ways

Nope. Either gold miners go up with gold or gold (GLD, IAU) cannot continue to go up. That correlation can fail over short periods of time, but not over long periods of time and it’s a good idea to look up and take notice when the correlation starts to fail.

Today it’s not working. Gold is up (GLD is up 0.46% at 2:16  pm ET) while gold stocks are down (GDX is down 0.51%).  This lack of positive correlation can last for a while, but not for long.  Eventually the two move together.

Gold had trouble making a new high recently, then failed, and is now attempting to maintain a brand new breakout. GLD must remain above 139.54 to keep this breakout viable.  If not, the downside will be swifter this time.  Commodities correct violently (high volatility) when they correct, because the market really does not know their exact price; it’s just a guess.  And with gold and silver, it’s a very wild guess.

The recovery of GLD above the 139.54 level is encouraging, but it must be proven as a true breakout. The dollar has fallen a bit fast of late, so a dollar rally could be in the offing, which could cause the gold breakout to fail once again.  Enter slowly here and again on a brand new high in GLD (we are under that high).  A more conservative approach would be to wait for the new high before investing more.

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Standard Disclaimer: Remember, it’s your money and your decision as to how to invest it.

© 2011 David B. Durand, M.D. All rights reserved.

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