“As long as that pull back is orderly, one would have to give bulls the benefit of the doubt in the long-term timeframe,” says Adam Sarhan, CEO of New York-based Sarhan Capital. “However, the bears remain in control of this movement.”
At its low of $1,534.49 early Monday, gold was down 20 percent from the record high at $1,920.30 set on September 6. While 20 percent is the conventional bear-market threshold for stock market technicians, it is less meaningful for gold because the market is so volatile and sometimes illiquid.
“As long as we are not settling below $1,500, I’m very, very comfortable in my bullish bias,” said Christopher Henwood, a commodities market analyst for Reuters Insider.
CORRECTIVE MEASURES
By Monday evening, gold had pared its losses to close 16 percent below its record. Such a loss is in keeping with corrections seen since the start of gold’s decade-long bull market, according to Sarhan, who said the average monthly pullback for gold since the uptrend started is 15.6 percent.
Gold closed at $1,620.09 per ounce on Monday, down from $1,655.29 on Friday. That is still a quintupling of prices since gold broke above $300 per ounce in 2002.
“This is simply in line with the normal average decline we’ve seen since 2002 in gold’s very strong bull market,” Sarhan said.
Indeed, since gold recovered from a 33 percent July-October 2008 retreat during the financial crisis, gold’s largest declines were 14 percent over 42 days in February-April 2009 and from December 4, 2009 to February 5 2010 with 15.2 percent shed.
“Normally in bull markets as established in gold, you see several pullbacks which shake out the weaker hands and also give the market and bulls a chance to digest the recent move,” said Sarhan.