Last week the Dow fell -6.4%, its worst week since October 2008. Gold dropped -9.7% for the week…and experienced the worst 2-day decline since February 1983.
But last week’s decline was not something to sell into. And there are a few reasons for that.
First of all, the reason for the sell-off was that gold turned into a source of liquidity for margin calls, as investors were forced to sell gold positions for cash to meet margins.
And we’ve been through this before. In October 2008, as the financial crisis unfolded, gold dropped -18%. Then it turned around and recovered 23% over the next two months. And today, fragile economic conditions will continue to support gold prices.
And looking at a proxy for gold, SPDR Gold Trust Shares, the fund is in a long-term positive trend, and is a long-term buy in spite of the recent decline (if anything, the fund looks oversold after last week).