Gold and silver have been falling this month.

The correction has so far been moderate, but don’t be surprised if gold moves within a consolidation area for a few months. Upcoming weakness will be the time to add to your positions.

The markets are sensitive and volatile.

This is why keeping focused on the major trends is important. Staying focused on demand is also vital because a demand based rise is the best and strongest rise in any market.

STRONG GLOBAL DEMAND

It’s not surprising that global gold demand was impressive again last year. Investment demand was the main driver, according to the World Gold Council.

Central banks made up a good part of this demand as their gold reserves have increased by more than 500 tonnes over the past two years... And the central banks are buying for the same reasons this year.

They want to diversify their reserves and protect themselves against relying on one or two foreign currencies. They want to continue restoring a balance and capitalize on gold’s rise as a means of preserving national wealth and financial market stability.

Plus, China and India will continue to play important roles in consumer demand, in spite of the recent global slowdown. And with the average Chinese citizen being encouraged to buy gold, it nearly guarantees that gold will continue rising.

FOCUS ON BIG PICTURE

Chart 1 shows gold’s big picture, which is always a good picture to keep focused on. When you see the over 40 year old mega upchannel develop as it has, you can see how close gold is to reaching the $2,500 level, the top of this channel.

We think gold is poised to rise much further than this in the years to come, but for now this is our next target area, once gold breaks above the $1900 record high level.

The bull market has completed several milestones with the first one being a rise above $500, then $1000, and now it’s $2500.

But first consolidation

Before any further record highs can be attained, it looks like gold needs to take a several month breather. This will be our next great buying area. Chart 2 shows this.

Gold tends to move in an A-D pattern on an intermediate basis, as our subscribers know. The 16% rise from December to late February was ideal for an “A” rise. They tend to be moderate and they tend to recuperate a good part of the prior decline, which was from September to December (D decline).

More important, the ‘A’ rise and the ‘B’ decline together form a consolidation time, which is probably where we are today. If gold now stays below $1,795, we could see it decline further to possibly the $1,600 level in a normal B decline.

Even if the December lows are tested, it would be fine within the bull market, and this would provide a great buying time.

On the upside, gold would look good again above $1795. It could then test the record highs. A break out into new high territory would mark the next bullish C rise. Keep in mind, as long as C rises continue to reach record highs, the bull market is strong and healthy.

Mary Anne and Pamela Aden