A renewed rise in gold, silver, and the other
precious metals has started. They've been rising
from their January 5 lows in a rise that is poised to become a great leg up
in the ongoing bull market.
In fact, so far in 2007 the metals have been
stronger than stocks. The gains in silver, for instance, have been five times
that of the Dow Industrials, in spite of its record highs, and gold has risen
more than three times the Industrials' rise. Furthermore, the Dow Industrials
has declined 56% in gold terms since 1999. So gold continues to be the better
investment by far.
A Different World
If gold is considered an alternative investment,
then why has it been rising while the stock market reaches record highs? Granted,
this is unusual but the world is unusual and it has been since the new
century started... massive liquidity, globalization, China, India, emerging countries, more
demand, rising markets, economic imbalances, debt, deficits and war. There
are many items on the plate that have changed the world's landscape and one
thing seems certain, these changes will continue to change the world and
they'll keep upward pressure on gold.
Gold Is Solid
Gold is showing strength, in spite of a firm U.S.
dollar as it has stayed above $600. The $600 level has been a solid support.
Plus, demand remains strong from India
and the oil producing countries, and China
has become the world's third biggest consumer of gold after India and the U.S. Momentum has
also picked up due to the drop in copper.
In addition, inflation continues to brew. The
difficult war in Iraq and Iran's
growing tensions in the region will unfortunately continue to give gold a
boost as well.
Chart 1 shows
gold adjusted for inflation. The point here is that gold is still underpriced and it could eventually reach $2200 in the
years ahead, the 1980 high adjusted for inflation. This alone is impressive
because it shows that gold at $2200 today would be the same as gold at $850
Gold: Renewed rise has begun
For now, gold's current rise has the potential to
surpass the May highs and possibly test the 1980 highs. You'll remember that
gold reached a 25 year high last May at $722. It's essentially been
consolidating that great rise since then, but now for the first time since
May, gold has the potential to rise to a new high for the move.
Chart 2A shows you
gold's cyclical A through D pattern. The C rises represent the best rise in a
bull market, when gold hits a new bull market high. And when this happens,
you know the bull market is solid.
As you can see, each C rise since 2001 has reached a
new high. This means that if the current C rise fails to surpass the May
peak, it would be a warning sign of a possible change.
So let's now see how far this C rise takes gold. If
gold closes and stays above $668 basis April, it would then have a good
chance of running up to the May high and surpassing it. But as long as April
gold stays above $630, the current C rise will remain in force, indicating
that these targets will continue to be within reach.
Silver: The best precious metal
Silver also looks great. It's strong, solid and even
though it weakened more than gold recently, it's still stronger than gold on
a major trend basis (see Chart 3C).
Silver shares have been the best of all, better than gold and silver, and
much better than gold shares.
Silver is also poised to rise further. Chart 3A
shows its solid rise above its rising 65-week moving average now at $11.30. With
the leading indicator poised to move higher, silver now has the potential of
reaching its May high near $14.88, and possibly surpassing it before the
indicator reaches overbought (see Chart 3B).
Both gold and silver will be in a new ballgame above
the May highs. Looking at silver's big picture on Chart 4, you can see
that once silver breaks above the May high it will also be clearly breaking
above its 1983 high, and it will be starting to enter the top side of its
mega upchannel. Silver's next upside target would
then be $22 before it eventually goes on to test the 1980 highs near $50.
For now, it's best to keep a larger portion of your
metals portfolio in the physical metals or their ETFs,
and keep more silver shares than gold shares.
Anne and Pamela Aden
Editors, The Aden
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