How could gold fall now?

After all, everything possible is going right for gold…

First and foremost, gold is financial catastrophe insurance… And the threat of financial catastrophe is the highest it’s been in years.

Second, when interest rates are zero, gold soars. And right now, interest rates are zero. You see, when interest rates at the bank are 5%, and gold is paying zero (as always), investors choose to put their money in the bank. But when the bank pays zero, and gold pays zero, investors hold their money in gold – an asset that can’t be printed.

[ad#Google Adsense 336×280-IA]This is exactly what has happened since the Federal Reserve cut interest rates to zero in 2008.

And the story just got even better for gold…

[This past Tuesday], the Federal Reserve announced interest rates will stay near zero for the next two years!

So gold just got a “green light” from interest rates for two years… and the threat of financial catastrophe is high. It’s time for gold to soar! Right?

Here’s my take…

Everyone reached that exact conclusion earlier this week. It’s what caused gold to jump from $1,600 to $1,800 just in the month of August (which hasn’t had that many trading days).

For the moment, the trade is “full.” Everyone trading gold realizes the two things above. And the latecomers who wanted to own it have now finally bought. Unfortunately for them, they’re going to get hurt…

This gold market feels a bit like the market in silver in mid-April 2011. On April 15, I told my True Wealth subscribers:

The price of silver has gone crazy. And individual investors have gone crazy over silver. Silver has soared too high, too fast. My experience tells me silver should see a quick and violent correction to shake out all these newer silver traders.

Silver peaked later in April close to $50 an ounce… Then, it crashed violently to $35 an ounce.

The latest sentiment numbers on gold are not out yet. But I bet they’re at the highest levels in years. I expect gold will have a healthy shakeout, to kick out the Johnny-come-latelies.

Based on history, gold could fall and then struggle to gain a head of steam over the next two to three months.

Then I believe it will resume its bull market. With ever-growing U.S. debts and interest rates at zero, gold can’t do much else but go up in the long run.

In short, I expect a multi-month correction in gold… followed by a resumption of its long-term bull market.

Good investing,

— Steve Sjuggerud

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Source:  Daily Wealth