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Gold Bubble Burst or Correction?




Is gold's bubble popping or is gold in a correction?

Gold has dropped from roughly 1,889 $ to about 1,193 $ (cents neglected). Since the minimum reached in 2013, we've witnessed mostly sideways oscillations in 2014.

Does the price drop signify the popping of a bubble?

Or, is gold correcting?

We can hear both terms quite often - "gold bubble" and "gold correction", but the two are not the same. In fact, they could mean totally different things.

A price correction phase would signify a drop of price. A commodity needs to "breathe", so a bull market would implicate a correction after a while. According to Jim Rogers, a price correction was expected after a decade-long bull market, so it was about the time gold dropped.

If this were to be a correction, then we've witnessed roughly a 37 % correction since the peak (drop from 1,889 $ to 1,193 $). This is considered normal and experts have actually expected a correction of around 40 %.

Gold would then have to recover and the bulls would kick in, which could propel it higher. Theoretically - if this were a correction, gold could recuperate the 40 % price drop and head higher than the previous peak of 1,889 $.

Many investors are hoping for the 1976 event to repeat itself. Back then, gold corrected by 40 % only to shoot up 800 % higher.

But what if it's a bubble?

If it's not a correction, it could be a bubble popping, which could send gold all the way down to levels before 2008. This means sub-500 $, even.

One thing that could stop gold's price from dropping to the early 2000's price leveles of 250-300 $ is the production cost of gold - now around 900 $ on a global level. So, gold should theoretically drop to 900-1,000 $, perhaps even a bit lower.

A bubble could bring gold down probably to around production cost levels, but then it will have to rise - the obvious consequence of price being close to production costs.

So, what could it be?

Correction or bubble popping?





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