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Gold set to dip lower?

Gold is down $18.10 according to the Kitco website this morning, with the metal trading at $1,394.10 a troy ounce.

It is quite clear that the market is not following the 1980 pattern precisely, but is it close enough to still be considered accurate?

Had it taken the same number of days from the low point to a high point, yesterday would have seen gold close at the highest level since its lows 50 trading days ago.

Clearly, though, the high point was reached last Tuesday, Aug. 27, when it closed at $1,420.60 an ounce. Yesterday’s close of $1,412 was close.

Is a difference of four days enough to blow the whole parallel hypothesis?

The order of magnitude of the drop this year compared to 1980 is vastly different. We are working with a decline of 18 percent versus 44 percent in 1980.

In 1980, the bounce off the low made up 80 percent of the loss from the peak price.

We have seen something similar. The 18 percent price drop in this cycle has been followed by a bounce. However, had the bounce been an identical percentage as 1980, it would have recovered 80 percent of the 18 percent loss. Such a bounce would have taken the close to $1,465. It fell $44.40 short.

Do we call this close enough as in the game of horseshoes?

If today’s gold close is down significantly from yesterday’s close, I would be inclined to say game on and the parallel holds. Then we can still benefit from looking at the 1980 trading pattern.

If the close is up or down in a marginal way, then that could make me think differently.

As I cited Mark Twain back when I first noticed the similarities between 1980 and 2013, history doesn’t repeat, but it rhymes.

Anybody in the gold market today will have to determine if he is seeing something that rhymes with what has happened before.

If the answer is yes, we are going to have to be prepared for another correction in the price of the precious metal.

Buzz blogger Dave Harper is winner of the 2013 Numismatic Literary Guild Award for Best Blog and is editor of the weekly newspaper “Numismatic News.”

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