Important breakout in the Dow-to-gold ratio and its implications for gold

Let’s move on to gold’s very long-term chart now.

Click to enlarge.

In this chart, we see a situation quite similar to the declines to 2008, where a sharp pullback was followed by a continuation of the severe decline. The most bearish factor here is the shape of the decline, which is a reverse parabola. This formation results in accelerated declines and makes it difficult to tell how low prices will go. Although the declines will likely end shortly, the increased volatility could result in prices moving very low quickly while still being in tune with the trading pattern. This reverse parabola has been in place since last October.

The very long-term cyclical turning point suggests that a local bottom will be seen soon — within the next month, probably about two weeks from now. Keeping both of these factors in mind, we should prepare for even bigger declines.

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