Predicting the bottom

22/10/2010 by Philinje.

Now that the correction in gold and silver seems to be underway, it becomes a tricky game to predict the bottom.

There are two factors to consider: price and time. In terms of time, it seems mid to end of November is the right time to jump in. In terms of price, it could be the $1250 level that I guessed about previously (actually, my favorite guess is $1230-40, because gold always overshoots support levels on the downside). But here is a view that says $1265 is a likely bottom, which was the recent breakout level:

http://goldscents.blogspot.com/2010/10/bottom-in-sight.html

Take your pick. Another scenario, which is looking very unlikely, is that gold gets driven down to $1100-$1150 over the next few months. This could potentially happen if a severe crash in equities occurs and lingers around for a few months. In fact, a mild crash in equities is probably what would cause gold to overshoot $1250 or so on the downside. So a third factor to consider is the degree of weakness in equities toward end of November.

So far, it looks like we’ll have a mild but substantial rally in the dollar and a mild decline in equities. Then the dollar will sink like a rock and equities could rally substantially, in anticipation of inflation. Gold could go parabolic at that time.

So in conclusion, we need to be very alert in mid November.

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