"Some comments on your excellent charts showing over-extensions in gold:

"You have mentioned that corrections exceeding $100-120 (as in last two years), might signal a medium term peak. Should we not be considering percentage corrections rather than absolute figures, considering that the prices have doubled in the last two years?

"The extension of about 135% in the 1970s is interesting and perhaps not impossible to achievable once again! If Dow goes below its 2009 low (6460) in about 12-18 months, to say 4500 (as predicted by Russell Napier, author of 'anatomy of the bear'), and the Dow/gold ratio reverts to 1.25 (see 50 year chart), with 200 dma at about 1550 in 2013, the overextension would be 135%!! Sounds crazy!?

"I would appreciate your thoughts."

Eoin Treacy's view Thank you for these questions which may be of interest to other subscribers. Investing is all about making educated guesses and your scenario for an eventual peak to gold's secular bull market is as good as anyone else's. We will let the chart action guide us.

Gold prices have been rising for 8 consecutive weeks and this pace is unsustainable beyond the short-term. We would regard a reaction of more than $120 as a meaningful change to the supply/demand imbalance that is helping sustain the current advance. Today's downside key day reversal is another warning that gold's short-term advance is maturing. Follow through tomorrow would likely form the larger reaction we have been sensitive to.

An unleveraged investor might be more interested in monitoring percentage declines.