Monday, September 1, 2008

Necessary Correction

Recently I've come to the conclusion that commodities have now joined the rest of the markets in a cyclical bear market. I pointed out to subscribers a while back that whenever the CRB has topped out in 19 months or less it has signalled a longer term top 100% of the time. The 3 year cycle for commodities should bottom somewhere around 2009/10.

I've pasted the Fibonacci retracements on the long term gold chart. I suspect by the time this bear is over we will see gold trade down to the 68% level. We may even make it back to $450 which is where gold took off on the Katrina disaster. Note how three years later we are in the process of taking another hurricane hit but gold and oil are trading down instead of rallying. There is a gap on the GLD chart that has never been filled from Sept. of 05. The next couple of years would be the perfect opportunity for GLD to fill that gap.

I'm going to point out that because of how human emotions work it is absolutely critical that the metals go through a major correction at this point and if not now, soon. Without it there would be little hope of this secular bull market reaching it's ultimate potential. That potential in my opinion will be a Dow:Gold ratio of 1:1 sometime in the next decade.

I'll elaborate in more detail in today's update for subscribers.