What's funny about bull markets is that no matter what the sector (technology, airlines, gold, etc.), they always trade the same way.
This means that bull markets climb “a wall of worry.” Every time there is a dip in the bull market, people begin to cry wolf and scream, "The sky is falling!" They think the bull market is over.
What I find funny is how fast the sentiment has turned against gold.
Gold, after all, just hit an all-time high last month and has just dropped about $80, or 6 percent, from its high. People are acting like the sky is falling and the bull market is over.
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In the past 10 years, seven of the 10 yearly lows for gold have occurred in January or February. Gold often sees weakness early in the year.
For example, in 2009 gold dipped to $810 in the first quarter then finished the year at $1,125 an ounce. Last year, gold bottomed at $1,044 in February and finished the year at $1,370. Therefore, as we can see, if you buy these dips early in the year it usually pays off as the gold price usually rises throughout the rest of the year.
We should remember that despite the talk of improving economies and rate increases in Brazil and China, nothing has really changed. Governments are still spending like crazy. The U.S. deficit is still going to be far north of $1 trillion this year. The disasters of Medicare and Medicaid, in the form of unfunded liabilities, are still to come.
This is just a normal correction in gold.
About the Author: David Skarica
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