History Repeats

American philosopher George Santayana warned us that if we ignore history, we are doomed to relive it. I'm sure he wasn't talking about the gold market, but his dictum applies there too.

For example, compare what has happened in recent days in gold to what happened in early June. Here are some of the comments from my June 18th alert in italics, followed by my comments on the current situation.

1) "On Monday, the selling pressure that started the week before continued."

This time the selling pressure started on a Wednesday.

2) "Gold went into a mini-freefall...before finding support in the $540s."

Gold's 200-day moving average was in the $540's back in June, and support provided by that important average held. Gold's moving average is presently at $589, which is the support level gold is presently testing.

3) "It is significant to note that the Dollar Index barely rallied during this gold rout...This observation is important because it suggests [the] mini-freefall was gold-specific. In other words, it was factors unique to gold that caused its price to drop. There was no simultaneous rush into the dollar. Therefore was someone 'piling on' to drive gold lower?"

These words exactly describe the current situation, and I ask the same rhetorical question. Was someone 'piling on' to drive gold lower?

4) "By Wednesday, the closing price of gold on the Comex was down seven days in a row, which is a very unusual occurrence. That degree of selling pressure indicated the market was due for a bounce."

So far gold is down five days in a row, basis the New York closing price. A bounce can be expected at any time. After the June low in the $540s, gold climbed all the way back to $650.

We'll see if history repeats. I expect it will because as we can see from the charts below, gold and silver are simply experiencing a bull market correction.

Corrections are not a lot of fun. But they provide great opportunities to accumulate metal. Gold and silver are at their lowest price since June.

I would like to end this alert with the same words I wrote back on June 18th because they apply as much now as they did back then.

"To conclude, gold and silver remain in bull markets, but there have been two important changes. First, the huge short position established by the gold cartel this past week has created the possibility for a short squeeze. That's bullish news, and the other change is also good news. The selling pressure last week has moved both gold and silver to price levels at which they are again exceptionally good value."

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

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