As we said at the conclusion of 2010 and the first week or two of the New Year, investors should expect a slight correction in gold and silver prices…that correction is currently underway.
Although gold has steadily been on the rise for several years, it periodically goes through what we in the business call a correction. Lately, gold’s pattern has resembled a two steps forward, one step back pattern – the gold price would steadily increase and peak at a new record after which a decline occurs for a period of time.
Once this decline is over, the gold price starts working its way back up, surpassing its old record and eventually setting a new one.
This kind of ‘see-saw’ pattern is one reason why many analysts familiar with gold and silver investments don’t think the precious metal is in a bubble. Tech stocks in the 90s and housing in the first decade of the 21st century saw meteoric rises, essentially vertically.
This certainly hasn’t occurred with gold as the price typically increases for awhile, drops a bit then levels off and begins on the upswing again.
Over the last 30 days, gold has gone down around $42.50. Much of this decline is attributed to investor profit and breath 
taking. 2010 saw a 26% jump in gold with the last correction occurring several months ago.
Most analysts in fact see this pullback as a ‘healthy correction.’ Straight vertical rises in the gold price would be a signal the market is over-heating and poised to crash significantly.
Another perspective from Bloomberg though attributes the decline to the anticipation that higher interest rates are in the not too distant future. If borrowing costs rise, gold loses some of its luster.
In fact, gold is on track for its first monthly loss since last July.
However, many analysts expect gold, silver and even commodities like oil to shine in 2011 as the tenuous economic recovery starts yielding results.
Gold in fact has a long way to go before it reaches true, inflation adjusted record highs. In 1980, gold peaked at $2300 in today’s dollars. That leaves a lot of room for growth but like we’ve said before, it may seem like a bumpy ride getting there.
Many consider silver undervalued and a bargain right now. One technical analysis though says we could see as much as a 20% correction (it’s currently about 10% off its highs)
Of course all of this is depends on any sovereign debt crises that lay in our wake. Countries in Europe are still experiencing difficulties along with the U.S. If another situation begins to unravel, many investors will choose gold and silver to safeguard their wealth.
Now may be a great time to buy gold and silver at a reduced price. If you’ve been timing things to wait for a correction like this, good call. If you miss it this time, you can be pretty sure another correction will occur sometime around the middle of this year.
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