Thursday March 21, 2013 09:42
With the stock market hitting record highs, gold has been taking a
back seat. But that may not be the case for long… Gold is coming
We are firm believers in going with the flow. The flow for gold is
still up, but after a stellar 12 year bull market run, this market is
telling us to have patience and to also continue taking advantage of
weakness to accumulate at better prices.
Gold’s reluctance to fall is most interesting. After rising 660%
since 2001, it has fallen less than 20% from the highs. That is, after
reaching its record high 1½ years ago, it quickly fell to its low.
That low was tested in the Summer of 2012, and it was tested again a
couple of weeks ago as gold neared this low (see top Chart
This low is key today for both gold and silver and we’re watching
these levels closely… $1536 and $26. If gold and silver can
weather the storm by staying above these levels, they will come out
smelling like a rose.
GOLD DEMAND REMAINS STRONG
This is why
central banks continue buying gold. They added 534.6 tons of gold to
their reserves last year, the most since 1964. Plus, the World Gold
Council also reported official holdings increased to more than $12
trillion in 2012 from $2 trillion in 2000.
India has been the largest buyer and its January gold imports jumped
23% from a year ago. China is launching its first ETF backed by gold, and
its new Shanghai gold exchange has become a full on exchange.
China’s been a major gold producer over the last four years and
it’s also been importing more gold, so much that it’s
TECHNICALS LOOKING GOOD TOO
As we’ve often explained, gold tends to move in intermediate
cycles and that’s been the case since the 1970s. This repeating A
through D cyclical pattern is identified on the chart.
The As and Cs coincide with intermediate rises in the gold price and
the Bs and Ds coincide with declines. For now, the gold price is in a B
This B decline started last October and during these past five months
gold lost 12+% from the $1796 high to the $1572 low. This decline has
been longer, yet it’s been normal compared to prior B declines. The
worst one was in 2009 when gold fell over 13%.
As you can see, gold’s leading indicator is currently at a low
area (see Chart 1B). This strongly suggests that gold is
oversold and it’s looking for a bottom. In other words, this chart
is telling us that gold’s next direction is far more likely to be
up, rather than down.
Chart 1A also shows gold clearly below its 23 month
moving average for the second time in the 12 year bull market. The last
time was during the 2008 financial crisis. But as long as gold stays above
the prior D low at $1536, all is well.
On the upside, if
$1536 holds and gold stays above $1590, it could jump up to the $1660
level, and the B decline would then most likely be over. Once $1660 is
clearly surpassed, a new C rise will be underway and these tend to be the
strongest intermediate upmoves.
Gold’s next stepping stone resistance levels before a record high
could be reached are the $1750, $1800 and $1903 levels. Gold would
be flexing its muscles, however, above $1800, a level it’s failed
to overcome since Sept 2011.
On the downside, however, if gold falls below $1536 we could see
sharper down moves before the lows are seen. If this happens, we could
possibly see the $1300-$1450 level tested, in a worst case scenario. But
we don’t think that’s going to happen.
By Mary Anne & Pamela Aden
Courtesy of www.adenforecast.com
Mary Anne & Pamela Aden are well known analysts and editors of The
Aden Forecast, a market newsletter named 2010 Letter of the Year by
MarketWatch, which provides specific forecasts and recommendations on
gold, stocks, interest rates and the other major markets. For more
information, go to www.adenforecast.com