This is a classic "deflation" trade and it is clear that the markets are reacting negatively to the anticipated withdrawal of Quantitative Easing (QE). We believe that whilst equities and oil will recover on the basis that economic prospects will continue to improve, gold and silver will remain under pressure until the reasons for owning them (negative real interest rates, inflation, further economic stimulus, geopolitical upheaval) return to the fore.
With interest rates increasing sharply and no inflation, the real danger at the moment is not inflation but deflation and the markets are reflecting this risk. Whilst the correction in equities is welcome and expected, a deeper and sustained decline would call into question the withdrawal of QE and could see a more dovish tone from the Fed to arrest the decline in stock markets.
We expect further declines following gold's drop below 1322, though a bounce here from an oversold position is likely. Our ultimate target for this correction is 1150, which we would consider to be an excellent long entry point, though we cannot completely discount the possibility of a spike lower to 1000-1050.
Today's video looks at the recent trading in more detail and our strategy for our next trade.