The Next Step for Gold

Last week, gold junkies learned a lesson of the inevitable. Trends that turn
parabolic are simply unsustainable. Nothing not even gold can defy gravity
indefinitely. While picking the top of a steep uptrend is frustratingly
difficult, it is not difficult to anticipate that the correction will be steep
once it finally arrives. Such was the case with the crazy run in silver once it
finally caved in April, and such has been the case with countless other
parabolic runs. That said, I suspect the current retracement in gold, and the
related SPDR Gold Shares (NYSE: GLD ) exchange-traded fund will be much less
severe than silver's correction. If nothing else, the recent developments in
GLD illustrate the importance of using a stop-loss when you're chasing a
commodity as overextended as GLD was before the correction. So what's next for
GLD? As is customary for charting enthusiasts, we can look to the past to get a
better idea of what the future may hold. How has GLD reacted after other
high-volume corrections? As shown in the chart below, the last three corrections
on elevated volume signaled a shift in momentum. Rather than bouncing back
strong and surging quickly to new highs, GLD entered a consolidation. Given the
gargantuan gains GLD has captured over the past month, it's easy to argue the
need for some digestion. While we may see a minor bounceback over the coming
days, I would be very surprised if we surge to new highs anytime soon. As
we've seen in the past, it usually takes time to heal a high-volume
correction. Source: MachTrader At the time of this writing, Tyler Craig had no
positions on GLD.