Gold is likely to correct further

The improving outlook for risk assets over the past few weeks has resulted in correction in gold, a safe-haven. We can see from Chart 1 below that gold is now testing its intermediate uptrend line at USD1535. Chart 1 is a weekly linear chart, prepared by me using data from Bullionvault.com.


Chart 1: Gold's weekly chart as at Dec 22, 2011 (Compiled using data from Bullionvault.com)

However, if we looked at the daily semi-log chart from Stockcharts, we can see that Gold is now trading below the 200-day SMA line. Gold has broken its uptrend line at USD1600. The semi-log chart is preferred over a linear chart for long-term charting purpose.


Chart 2: Gold's daily chart as at Dec 29, 2011_plotted on log scale (Source: Stockcharts)

Based on the breakdown of the uptrend line on the semi-log chart, I believe that Gold is likely to correct further. Those holding gold may reduce their holding. However, you should consider buying gold again if the price had dropped closer to USD1000-1100. In a world where central bankers are actively engaging in quantitative easing, the value of fiat money is likely to erode further. Gold, with limited supply, would retain value better than fiat money.