Irrational Exuberance in the gold bull market rally?

Everybody just loved gold. Radio and Television ads continuously pleaded that everyone, even your children, should own gold. And the public rushed in as gold moved above $1,100 and $1,200. Now we will see if they have the staying power to hang on during the first major correction of the bullish trend.

The US dollar is the supposed culprit in this sell off, but I am not so sure. Every market reaches an over reaction point.  All trends eventually have a correction, because the last of the eager sellers finally quit selling or the last of the eager buyers finally quit buying. Every bull trend easily reverses as soon as the next buyer steps aside and says “I don’t think so. I’ll wait.” That is what we have now in the gold market.

How far can this decline go? Considering the amount of “new” buyers and investors in the gold frenzy, who knows. Some will come out and sell early, because they have no stomach for the correction and others will try and hold on. It is best to wait until you see a clear sign that prices have stopped their decline. We have not seen a bull market that was built upon such a foundation of hype for some time. It will be interesting to see how this plays out.

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