What Correction?

When it comes to markets, it is very easy to lose sight of the big picture. Recent events in gold and silver provide a good example of this reality.

We receive a constant stream of new input by reading the daily newspapers, watching TV, talking to family and friends, etc. So it is only natural to be influenced by this continuous stream of data, but these influences can cause us to lose sight of the big picture.

For example, the corrections in the price of gold from $715 to $542 and from $14.80 to $9.50 in silver were difficult to endure, living through it as we did day-by-day. But let's step back from the trees and take a look at the forest. Look at the following long-term charts of gold and silver showing their price at month-end (all data within the month is ignored).

Gold looks like it hardly corrected at all, declining only 4.5% in June. It's just a small blip on this chart. Silver had a deeper correction, declining 12.6%, but that is to be expected. Silver is more volatile than gold; it ran up faster and fell faster too.

The point I am making is to focus on the trend. The age-old adage "The trend is your friend" may sound trite, but it is our most valuable and time-tested insight when it comes to markets. Don't lose sight of the trend, and as the above charts clearly show, the trend for the precious metals is still pointing higher.

Corrections in a bull market are a natural occurrence and should be expected. Nevertheless, we are always surprised when they happen. But corrections come and go. In contrast, trends stay much longer than we expect.

Published by GoldMoney
Copyright © 2006. All rights reserved.
Edited by James Turk, alert@goldmoney.com

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