Gold: Strong Bullish Action
Gold's strength is unusual. Just when we thought that gold was taking a breather from its stellar rise, it quickly turned up.
Gold has already surpassed its June record high. Its decline through July was moderate, giving up less than 8%, and this action is bullish.
Someone is clearly buying up gold at every opportunity. Is it central banks, hedge funds, or nervous investors? We think it's all of the above.
A New Era
Many believe that gold will have a sharp decline before another up leg gets underway. It's a rare time in history to see gold rise steadily for almost two years, without more than a 14% correction. This alone is why another leg up is unexpected.
This month, however, marks a year since gold broke into a stronger phase of its decade-long bull market when it closed above $1,000. If gold continues to rise, it will clearly reinforce that a stronger phase in the new era of precious metals is indeed underway.
Growth Market
Gold demand continues to grow. It surged 36% in the second quarter and the amount of gold held at exchange-traded funds is way up. The SPDR Gold Trust (NYSE: GLD) is the sixth-largest holder of gold in the world today.
But even with overall demand growing, gold as a percentage of global financial assets is still small compared to 1980, when the gold price reached a record high. This tells us that gold's bull market is still young, in spite of its 9 1/2-year rise.
Historical Comparisons
In fact, the gold price this past decade reminds us of the US stock market in the 1980s. It had a good run, but the best was still to come.
The 1990s were filled with optimism and good times. A new revolution in technology was in full swing, which pushed the stock market to new heights.
In comparison, the coming decade has the opposite outlook. While technology continues to get better, the US and other Western economies are racked with debt, global power is shifting, and
we have war.
Bonds - A Viable Alternative?
Bond prices have been soaring as interest rates decline. Recessionary pressures took their toll, but it looks like the bonds' strength won't overtake gold's.
In 2003, gold confirmed its strength over bonds for the first time in over 20 years (see Chart 1) and has been stronger than bonds since then (excepting the brief gold dip during the heat of the meltdown in 2008).
A Class By Itself
Gold is stronger than stocks, bonds, and the dollar... and it's positioned to move higher in an intermediate rise, especially considering the seasonal trend.
For those of you who have been waiting to buy at a better price, we believe it's best to average in. A correction will come, likely in October, and when it does, take advantage of it -- but don't wait for it completely. Keep new positions focused on gold and silver from now onward.
A Note On Silver
Silver is starting to take off. It jumped up in recent weeks as it benefits from the gold and copper rise.
You may remember that silver outperforms gold when the resource sector and gold are both strong at the same time. This was the case from 2003-2007 and it's starting to happen again (see Chart 2).
Note silver's uptrend and channel since 1990. It actually reached a low in 1990 and it essentially moved sideways during the 1990s while gold fell. Since 2004, silver has been strong, and it doesn't show any sign of losing momentum.
Now that silver has closed clearly above its 2008 high of $20.80, the $25-$28 level is our next target.
This article was written exclusively for Euro Pacific Precious Metals, Peter Schiff's gold coin company. To learn more, please visit www.europacmetals.com or call us at (888) GOLD-160.
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Author: Mary Anne & Pamela Aden
Mary Anne and Pamela Aden
Aden Forecast.com
Mary Anne & Pamela Aden are well known analysts and editors of The Aden Forecast, a market newsletter named 2010 Letter of the year provides specific forecasts and recommendations on gold, stocks, interest rates and the other major markets. For more information, go to www.adenforecast.com
The Aden Forecast is one of the most influential and successful investment publications in the world today. Written and published since 1982 by the internationally renowned market analysts Mary Anne and Pamela Aden, The Aden Forecast is a monthly 12-page investment newsletter specializing in all major markets with special emphasis on the precious metals, currencies, and natural resource markets.
Its easy to understand format and powerful advice have consistently produced double-digit profits for investors in 21 out of the past 25 years, giving The Aden Forecast one of the best and most consistent long-term track records among all financial newsletters and investment guides!
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