The month of September has not been kind to Gold; and the question before everyone is whether or not gold has seen its highs for an intermediate period or whether a brief pause before higher highs are forged. We are of the opinion of the former rather than the latter, but we remain gold bulls – but from probably lower levels than most are looking for at this juncture in the cycle.

Gold 9-30-11

From a technical perspective, we should note that Gold has forged a "monthly bearish key reversal" pattern to the downside. Now, monthly reversals tend to much more important than daily or weekly varieties and we think of this one as no different. Having said this, many analysts are looking for Gold to hold the $1535 lows forged recently, but we are looking for something a bit lower – to perhaps between the 20-month and 40-month moving averages at $1382 and 1164 respectively. In doing so, this would not destroy the bull market whatsoever, but it would be a "gut wrenching" period for the "super gold bulls", of which we know many. The last major correction took place under the aegis of the 2007-2009 bear market for stocks and commodities, and saw gold prices fall over the course of 9-months from $1053 to $681 or -35%. And putting pencil to paper and using the recent highs at $1924...and dropping prices by -35%...we get a round number of $1250...which is square within our target range.
Therefore, while we do like Gold long-term – there is a technical case to be made that a larger correction is unfolding upon which we can be aggressive buyers sometime next year. But for now – it would seem wise to stand aside and allow the market to wreak havoc upon those late longs.

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