Gold Prices: A Good Reminder for Traders
Gold Prices: A Good Reminder for Traders

US markets had a terrible mid-week, with the Dow losing over 1300 points in just 2 days. International markets have also had a rough time, on top of a rough time – check out this daily chart of QEMM compared to the Dow over the last 3 months.  The blue line is the Dow, candles are QEMM.

(credit Fidelity.com)

You can easily see that while the US stock market has generally been heading up the past 3 months, emerging markets have had a hard go of it. The trend there says “lower highs and lower lows,” which as we all know is the recipe for a downtrend.

DWM, the highly-ranked Wisdom Tree International Equity ETF, tried hard to hang on, banging its head against resistance 3 times before succumbing to downward pressure in late September. The writing was on the wall though, as it was making lower lows on downswings between attempts.

(credit Fidelity.com)

In the meantime gold, as we know, has been going sideways for 2 months after its low in mid-August. Some overseas markets have seen gold rise as their local currencies declined.  Yesterday gold prices finally woke up in the US markets, too. 

(credit Fidelity.com)

Despite what you might want to believe, all this does not mean gold is now safe and will run up steadily from here.  Markets don’t go up and down in straight lines, there are dips and jogs and swerves along the way. What this latest action does do is reveal gold is still seen as having value (number 1), gold is not dead (number 2), and we can expect gold to run up should markets REALLY drop (number 3).

Why is your friendly Gold Enthusiast implying that markets haven’t really dropped?  Didn’t we just tank 1300+ points in 2 days, and isn’t 1300 points a lot? Yes, and no.  Remember your percentages and basis’es. 1300 points of change against a 26-thousand point basis is just exactly 5 percent.  And it takes a 10 percent change to enter correction territory. So even though a 1300 point drop is indeed “a lot”, as a 5-percent change it’s still just normal action in an uptrend.  We’ll have to see the Dow break down more than 10% to be concerned.

Now if investors start fleeing equities left and right – yep, that’d drop it down more than 10%.  And from what we’ve seen, gold prices will surge – and fast. 

Signed, The Gold Enthusiast

DISCLAIMER: The author has no positions in any mentioned security, with no plans to initiate any in the next 48 hours.  The author is long NUT and JNUG and is looking for short-term trading opportunities in these over the next 48 hours.

Related: Here’s How the Dow’s Plunge Affects Gold