If this is a sharp correction before a secular finale for gold, then there is a potential mirror from history in the Nasdaq.
The Nasdaq made a long secular bull market from around 1982 to 2000. Just over a year before its parabolic finale it made a sharp correction that potentially signaled an end to the bull market.
Underlying Source: Azizonomics
A technical break in a long mature uptrend with p/es having reached largely over 50. If you were trading at this point, there was an obvious case for considering this to be the end: a 16-year bull, very frothy valuations and a major technical break.
Zooming in on the break, we can see the Nasdaq corrected down to support in wave 1, then tracked weakly along support in August and then a technical break triggered a wave of sharp selling in 3 days at the end of August:
Both the technical action leading into the falls and the percentage drop (in that wave 2) were similar to current gold. The Nasdaq then spent around 3 weeks gradually retracing its falls to backtest the breakdown, before a further wave of selling brought it to a new and final low. It then took off and didn’t look back, spending 18 months carving out a mania, a parabolic blow-off top.
With hindsight, we might argue that the clue that the Nasdaq wasn’t done was that the uptrend up until 1998 had been fairly measured with no mania. This applies to gold now. If this the end of a K-winter with gold the leading asset, then we might expect a final mania, along the lines of the Nikkei in 1989 or gold itself in 1980. Below we see it has only made a fraction of their respective peak gains.
The Nikkei in 1989, the Nasdaq in 2000 and gold in 1980 all spent a couple of months falling hard following their peaks and transition into secular bears – averaging losing 40% of their secular gains. If gold just made the final snap into a new secular bear then we should probably expect more falls to resume fairly swiftly, with more big down days.
Let’s see how gold fares then this week.