is it safe to get back into the water?

US and European markets are rallying and so is gold.

Is the correction over for the US market, and ours?

Have people been fooled into selling their goldies out of fear or have they simply used the downturn as a great trading opportunity?

The correction in goldies I follow was pretty severe. My portfolio was down about 22% and I culled 5% of the portfolio to raise some cash in case there were any specials on offer.

The turnaround in the US market seemed to come after the Fed met last week and announced it would maintain its easy money policies. This should be positive for gold because real interest rates on short term US government securities are likely to stay negative. Also positive for the gold price were the rising US PPI and CPI figures that were announced last week.

The ongoing financial problems in Europe and budget deficits around the world coupled with money printing policies (Japan, China, Europe, USA) encourage people to seek hard assets, such as gold.

One negative is that the Chinese govt is trying to tighten credit availability and is gradually raising rates (which is still not high enough to offset their rampant inflation).

Another major negative is raising fuel costs, which may have dampened the attractiveness of the gold sector over the last few weeks. Will this factor be reduced if the Libyan crisis ends? No idea where oil is heading or to what extent Japan's nuclear disaster will keep oil prices on the boil.

For now it seems best to be in the gold market unless one has a low risk tolerance, despite what ctindale warns (The end is near - but when is the end?).

I think the bigger issue is what to do in April/May? Will there be significant market jitters as QE2 comes closer to ending in June and QE3-18 have not yet been implemented. Will there be the usual selldown of goldies this year? Will the US market also get sold down as it often does? Will gold investment demand outweigh any seasonal factors that have in the past led to a decline in the price of gold over the subsequent 2-3 months? Can we rely on continued economic and financial instability to keep gold investment demand growing (I think so)?

Any views and charts?

loki (sleepless in the golden trough)