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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?

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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.