July 05, 2007

Courtesy of www.adenforecast.com

GOLD IS BULLISH

Gold has been volatile and under pressure lately. Should we be concerned? The answer is no. Taking a broader view of the bull market, you’ll see why…

Chart 1 shows the steps gold has been trading in since 2001 when gold first turned bullish. At the time we felt that if gold could rise above its prior peaks, the bull market would be strong because it would mark the first time since 1980 that gold’s been able to do that.

Well it happened, the steps developed and gold’s been in Step 4 since December, 2005 when it first broke above $500. That was a big resistance level at the time and it was finally surpassed. Whatever gold does now, it will stay in Step 4 by holding above $500 and until a new high above $850 is reached.

Step 4 allows for a lot of fluctuation but it’s a good broad based indicator to use to know that the mega trend is in your favor.  As long as it is, gold is still poised to reach a record high.

The recent announcement that the ECB has no plans to sell any more gold this year, together with growing inflationary pressures, is helping to stabilize gold.  But the jump in long-term interest rates is not because it makes gold less attractive since gold pays no interest.

GOLD MOVEMENTS ARE BULLISH

Sentiment turned bearish this month. Gold’s weakness would’ve been worrisome had it closed below the March low at $640 or below its 65-week moving average now at $633, but it didn’t. These levels are important to us in determining gold’s bull market strength and if gold stays above these levels, the bull market is solid.

This means that the demand based rise since January is still underway.  And going back further, the January low is higher than last October’s low. This alone shows a solid rise. Most important now is to see if this eight month rise has the power to reach a new bull market high above $722.

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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