How many of you woke up on the morning of December 4 and thought to yourself, Today, gold prices are going to take a ride on the Nose-Dive Express? Specifically, the yellow metal was going to plummet more than $60, erasing one-seventh of its entire rally for all of 2009 in one single trading day.
There was no good fundamental reason to expect such a violent retreat in gold prices. In fact, just two days earlier, the precious metal was orbiting the outer-galactic $1200/ounce level. And, according to the mainstream experts, the path of least resistance was up.
On this, the following news items from December 2 set the positive tone:
- "Another Day, another Record; the yellow metal hit another nominal record high and it shows no signs of melting anytime soon." (Associated Press)
- "Stock Up On Gold Right Now... Prices could reach $5,000." (CNBC)
- "Everything is working in gold's favor. It's almost a perfect storm for gold." (MarketWatch)
Yet -- two days later, the precious metal turned down in its sharpest single-day decline in a year.
Here's a more appealing picture: On December 3 in his Metals Specialty Service, EWI's chief metals analyst Mike Drakulich foresaw -- based only on gold's Elliott wave pattern and other technical indicators -- the potential for a near-term setback in gold's winning streak and wrote:
"I will again remind you how extended and overbought we are, but we can stay that way for a while... That said, we 'might' be close to another trading top. Same overall view with the caveat we could correct sharply by $50-100 at any time."
The $60-plus (5%) decline in gold prices that followed speaks for itself.