...Technically, gold futures contracts are showing a bearish rising wedge pattern so there is the imminent risk of a minor correction now. I say minor and not major, because I just can’t see gold retreating all the way back to $800 an ounce. I just think that such a significant retreat, given the vast problems in the global economy, and particularly in the U.S., has a very small probability. My downside projections for a correction are somewhere within the $850-$860 range if we see a correction, but should gold retreat to this range, I believe that this retreat will be very short lived as savvy investors will definitely view such a correction as a buying opportunity and jump into the market at this point to drive the price of gold higher again. As far as the “gold is too high” believers, even if gold doesn’t retreat by $40 or $50 an ounce, I believe that even at $900 an ounce, long term buyers of gold and those that have already been buying for years will be just fine adding to their current gold bullion positions at this price. At every step of the way during this current gold bull run, gold has been “too expensive”. It’s been “too expensive” at $400 an ounce, at $500 an ounce, at $600 an ounce, at $700 an ounce, at $800 an ounce, and now at $900 an ounce. The fact is that this gold bull run has a long long way to run.

As far as why I believe any such correction, if it happens, will be very short-lived, China provides some of the answers. A gold futures market just opened up in Shanghai on January 9th, with apparently plans for a silver futures market on the way as well. The Shanghai futures market may not have a lot of impact for now in the global market for gold, but it is an important global development as it definitely raises visibility of gold as an investment vehicle in China. With A-shares (shares of Chinese stocks available only in the Chinese mainland) still trading at ridiculous valuations and at 80% premiums to their H-shares counterparts (the shares of the exact same Chinese stocks that trade in Hong Kong), Chinese investors that are now sitting on 300% to 400% profits on their stock portfolios in just several years will be well served to take their profits and seek a new home for much of that capital. Gold may just be the winner in this rebalancing equation.

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