Gold breaks down, now what?

Gold flunked. Gold failed. Gold fizzled Wednesday. It closed at $680.30 an ounce, down on the day and now, for the first time since 2001 if my records are correct, it is down for the year.
On May 9, 2006, gold closed at $699.40. That means gold is down $19.10 on the year, or 2.7 percent. A deposit at the bank beat gold. The stock market beat gold. A little old lady on roller skates beat gold.

All I hear is silence. Is the gold bug community so self-assured that they can ignore this, or does silence mean a turn is coming in the trend? I have read that financial investors are so complacent that they are not taking sufficient account of the risks they are taking. Is this now true of gold investors also?

Let me know. Post a comment or e-mail me at david.harper@fwpubs.com.
Because of last year’s rapid descent after the May 11 high of $719.80 an ounce, gold can probably resume a positive relationship with last year’s numbers by simply waiting as the pages of the calendar turn.

On May 18, 2006, gold was at $679.60. The next day it was $656.70. Will those lower numbers make a difference, or will they begin to act like a ceiling on a trendline with lower highs and lower lows? We’ll see.

It is not the job of a Numismatic News editor to have the power to forecast bullion markets; however, it is a privilege to watch the markets unfold over time. Like the pilot of a sailboat, I get to lean against the wind.

The coin hobby always does best in a mild uptrend. The legendary stock investor Warren Buffett says down days on the market should be treated as shoppers would a discount offered by retail stores during sales. Investor psychology doesn’t work this way. Down days are looked upon less as a buying opportunity than a reason to shun the market.

Seven years ago I commissioned a few articles from Russ Rulau during the depths of gold’s last downturn. The topic was why it was a good time for buyers to consider getting in. There was silence then, too, for the longest time. It was a turning point in the downtrend. Those who noticed the opportunity are smiling now.