“I have been away from my desk for a couple of weeks and could hardly believe what I saw when I opened the gold chart this morning.

“What's up with gold? It's acting like any other metal at the moment. Gold has not performed as expected in light of the present financial mayhem in Europe. Any comments?”

Eoin Treacy's view Thank you for this question which I suspect will be of interest to a number of subscribers. Gold has now been in a corrective phase since late August and has yet to demonstrate a convincing return to medium-term demand dominance. We have hypothesised on a number of occasions that as participation in gold increases, in line with the secular bull market that has been evident for the last decade that it would perform more like a risk asset. This has certainly been the case over the last month as prices have returned to test the December and September lows.

On previous occasions when gold has accelerated to an important peak it has pulled back violently, closed the overextension fairly quickly and subsequently posted a progression of higher reaction lows in advance of an upward break and reassertion of the overall uptrend. On this occasion, gold has not yet given conclusive evidence that demand is returning to dominance beyond scope for a couple of impressive short-term bounces. It has now returned to an interesting level because the range lows represent a potential area of support. A bounce from this area would likely unleash short covering which could see a significant rally take place. On the other hand a downward break will lead to a questioning of the bullish hypothesis.