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It’s
been an exciting month. Gold rose, surging well above the $1300 level. Silver
and gold shares soared even more.
We
hear that gold is in a bubble, it can’t rise much further and so on.
Many wonder, why it’s even risen so much? For that, you again have to
look at history from a global perspective and it’ll provide the answer.
LOOKING
BACK…
We’ve
often pointed out that gold is money. It has been for thousands of years.
Paper money is not really money and there isn’t one paper currency that
has survived over time. Gold, on the other hand, has. It can’t be
created at will, it’s durable and it’s always maintained its
purchasing power.
In
1971 when foreign nations (particularly France) demanded that the U.S. settle
its deficits with gold, Nixon, who was worried about the disappearing gold
reserves, said “no.” In doing so, he shut the gold window. So the
time honored link between the U.S. dollar and gold was broken, the world went
off the gold standard and the U.S. dollar became the world’s reserve
currency. The U.S. then created a false prosperity via inflation, and ever
larger quantities of money and debt. But this was a fantasy that’s now
meeting head on with reality.
ABUSED
DOLLAR IS THE CULPRIT
Since
the U.S. is now going overboard with massive deficit spending and out of
control debts, the world is starting to want real money, which is gold. And
that’s why the dollar is falling and gold is soaring.
Naturally,
there will be corrections along the way. No market goes straight up, or
straight down and the hardest part is to stay with it. We’ve been
consistently recommending gold since 2002 and yes, there have been ups and
downs.
In
fact, gold’s exceptional rise has now reached our temporary target
level. It’s been a super rise, up 55% since April 2009… or you
could say, gold has soared 17% in recent weeks alone! By any standard, the
surge is due for a rest, which is likely now beginning, and this could last
for a few months.
Gold,
however, is still far from the mania, bubble stage. Average investors are
just starting to appreciate the rise in gold. They know things aren’t
right and they are learning that gold is a safe haven. They see the dollar
falling, the economy dragging with debt and the Fed trying to keep it
together. The public is concerned, but they’re not yet buying gold.
When they do, gold will surge to even far higher levels.
MEGA
BULL MARKET
It’s
important to keep in mind that great bull markets in gold occur one or two
times in a lifetime. The last one ended in 1980. It took 20 years before the
next (and current) bull market to begin.
It
began at a moment when most thought gold was dead and buried. Central banks
couldn’t sell their gold fast enough. The Bank of England sold theirs
at the major low in 2001. Meanwhile, gold producers had been hedging their
production in order to stay afloat. This despair marked the low.
But
now 10 years later, we’ve seen the gold price produce consecutive
annual gains. And with gold up more than 20% this year, 2010 will mark 10
full years of gains. This is the longest winning streak since the 1920s!
Times
have changed. But
it took the financial crisis and the ongoing aftermath to change the way
people view gold. Confidence is growing and the change in the central
banks’ actions and attitude toward gold was key in giving a green light
to investors.
Central
banks stopped selling gold and they’ve become net buyers this year for
the first time in two decades. They’re expected to buy 15 metric tones
of gold this year, which is a major turnaround. Gold is becoming an important
reservable asset and again, this bull market has further to run. So use
weakness in the weeks ahead as an opportunity to buy at a better price…
and then plan to hold on for the long haul.
Mary Anne and Pamela Aden
Editors,
The Aden Forecast
Aden Forecast.com
Mary Anne
and Pamela Aden are internationally known analysts and editors of The Aden
Forecast, a market newsletter providing specific forecasts on gold, gold
shares and the other major markets.
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