All that Glitters is Gold... and Silver, Platinum, Copper, etc.
The markets have been amazing. Gold soared to 25 year highs this month. Platinum and copper surged to record highs, while silver and gold shares jumped to 22 and 10 year highs. But that's not all... zinc, uranium, aluminum, lead and oil all soared as well.
The world is changing and it's fueling uncertainty. This month many investors turned to safety as geopolitical worries grew, especially in Iran. As the situation there intensified, it kept upward pressure on gold. This alone has become a very important factor with possibly a wide range of international and market repercussions. Plus, inflation concerns surfaced, as did speculation that several central banks are buying gold which added to the move.
Meanwhile, silver's possible new exchange traded fund (ETF) gave silver a boost. China's robust growth in 2005 was a plus for the base metals, while sugar continued to gain as a possible future alternative energy source.
From all angles, the metals, natural resource and energy universe is hot. Gold's bull market turns five years old this month, yet it's only starting to draw worldwide attention. But as hot as it is, rising 36% since July, 125% since 2001, and outperforming stocks, bonds and currencies since then, it still has a long way to go (see Chart 1).
Bull Market Power
This bull market has super power behind it because it has growing global demand, unlike anything seen in the past. China and Russia, for example, were closed markets before. This huge influx into the markets will greatly impact the extent of this bull market. Just in the U.S. alone, the ease of buying gold wasn't there before but GLD, the new ETF, is having a big impact. In just a year, it has a huge gold holding that otherwise wouldn't have been there.
For now, however, gold is correcting in a downward correction following its steep rise. This is normal and the downward correction will remain in process as long as gold stays below $560. But the major trend is more important and it's been up since 2001. And it'll remain up even if gold were to decline to as low as $457.
Nevertheless, some investors feel that gold may now be near a major peak. Time will tell, but if a steep gold correction materializes, it certainly won't mean the secular bull market is over. On the contrary, weakness for as long as it lasts will provide a fantastic buying opportunity for the years ahead.
Gold Steps in Place
Gold's secular bull market is clearly up and gold's steps have solidly been in place. Chart 2A shows that gold entered the fourth step in December when it broke above $500. It then surged, which isn't surprising considering what a milestone $500 was. If gold now stays above $500, the fourth step will remain solid, gold's super strength will be confirmed and $850 will be the next target, which is at the top of the fourth step.
Gold, on a major trend basis, tends to move in a 1-4 pattern, which is identified by the long-term indicator on Chart 2B. Gold's been in a #1 rise since 2001, which is the best bull market in the pattern. The indicator is now approaching the high area for the first time since 1987 but as long as the 2-4 uptrend remains intact, so will this #1 bull market rise.
So the numbers to be watching this month are... $560, $500 and $457.
Our focus is to identify the major trends and stay invested during the bulk of the major rises. Buying at intermediate lows once the trend is underway is the ideal way to buy more, or new positions.
Intermediate high areas can be tricky as we saw with the latest run up. If you sell at intermediate high areas, timing could be off, which could leave you out of the major rise. If you decide to take some profits, it's okay but know that it increases your risk. The market is now at an extreme overbought area in gold and the gold shares for the medium-term, so if you want to take some profits and haven't, now is a good time to do so.
We recommend keeping your positions for the long-term, however, and riding through weakness. We wouldn't sell any gold or silver, only shares if you want to, but also keep a good core position in these markets. For now, wait to buy new positions on weakness.