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The year is
still young, yet it’s seen many commodities soar. From the precious
metals, to the base metals, like copper and tin, to raw materials, to energy,
like oil and natural gas, to the soft commodities, like corn and wheat... the
commodity bull market has been flexing its muscles.
In the first
quarter alone, gold was up 10%, silver gained even more, near 17%, and copper
surged 25%. This is in stark
contrast to the stock market as the Dow Industrials lost 6% during this time.
The subprime crisis and its rippling effects have kept gold
and silver strong since last Summer. In fact, it’s helped keep the gold
price strong in all currencies. But the Bear Stearns emergency rescue seemed
to be the final blow for now. It looks like it marked the end of a panic.
Since then,
gold has been coming down from its $1004 record high posted on March 18. The dollar has also formed a small
bottom while stocks and interest rates have been rising (see Charts 1 and 2). The intermediate
trend appears to be changing. We
stress the intermediate trend because
the major trends are very much intact, which is up for gold and the metals,
and down for the dollar.
 
GOLD: Time to consolidate
Gold’s C
rise is finally over. After rising 55% in nine months, in one of the best
intermediate rises in the current seven year bull market, it signaled several things. Most important is the strength behind
the bull market because new highs
continued to be reached.
Gold’s
next step is likely to be a good downward correction that could take several
months to develop. In other words, the gold price is poised to move lower in
a decline we call D (see Chart 3A). In a worst case D decline, gold could
fall 22% (like it did in 2006), which would take it to the $780 level. If it
declines by 15% (like it did in 2003), the weakness could end near $850. If gold holds
above $840, it’ll be incredibly strong.
The Summer is
normally a seasonally low time for gold and this current D decline, based on
timing, could end in the June through August time period. This means buying
gold during the Summer may end up being the best time to buy.
Gold is a
cyclical market, sometimes amazingly so, and if the cycles continue as
impressively as they have over the last seven years, this scenario is the
most likely one (see A through D on Chart
3B).
This of course
is baring any surprise move, like the U.S.
invading Iran.
But surprises tend to come at interesting times, like when the subprime problem started last Summer. Gold was set to
rise in a C rise and this crisis helped push it to record highs.
BULL MARKET HAS MORE YEARS TO RUN
Some worry that
the March peak was THE peak for gold. This is very unlikely considering the
world situation and the economic imbalances today. Plus, demand for gold is
growing strongly. It truly is an international, expanding market and
it’s easy for people to buy. Last month, for instance, Chinese banks
began trading gold futures.
The gold market
is currently more powerful compared to the 1970s. There is much more money behind the
move. Whether it be China,
India, the Middle East, Russia or elsewhere,
the world has mega wealth and it’s acquiring
gold.
What to watch for
Gold’s
65-week moving average works very well in identifying the major trend (see Chart 3A). The gold price has been
consistently above this level since August, 2001. This average provides solid
support at $770. For now, gold is
vulnerable below $950 (basis June) and it’ll be weak in a D decline
once it stays clearly below $888.
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Mary Anne &
Pamela Aden are well known analysts and editors of The Aden Forecast, a
market newsletter providing specific forecasts and recommendations on gold,
stocks, interest rates and the other major markets. For more information, go to
www.adenforecast.com
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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