January 16 , 2007

Gold's Major Trend Is Up

Courtesy of www.adenforecast.com

A major rise in gold is underway, as you can see on Chart 1A. It approached its 1980 high last May and it remains in an almost six year old bull market. Gold has had four major rises since 1970 and this one is the fifth.

The leading long-term indicator identifies these rises and in each case, as long as the indicator stayed in an uptrend, the trend in gold remained up.

The indicator has now been in an uptrend since 1998 and if it stays intact, the bull market since 2001 will remain underway.

Meanwhile…

2006 was a volatile year. Gold shot up to a 26 year high in May only to fall in June and form another bottom in October. These two months saw the lows for 2006 at $562, and these lows are now important in the bull market.

The volatility over the past year has made it harder to identify the intermediate A through D intermediate moves in gold (see Chart 2A). The C rises are clearly the strongest rises when gold reaches a new high in the bull market. D declines are the sharpest declines. This means the most volatile moves will mainly be Cs and Ds.

The May peak was clearly an extended, double C rise… the best so far.  This was followed by a D decline, and it appeared as though a C rise had been underway since October.  But due to gold’s recent weakness we had to go back to the drawing board and reevaluate these intermediate moves.

It now looks like the double bottom lows in June and October was a double D decline. The timing at 21 weeks from May to October fits in (see Chart 2B). The C rises and D declines have been on the long side in this bull market and as you can see, there’s been two double Cs and now two double Ds so far. This is unusual, but it emphasizes gold’s volatility.

Most important, the C peaks have been higher and the D lows have been higher than the previous ones. This is bullish and it means gold must stay above the June and October lows at $562 for the bull market to stay on course.

This also means the C rise has yet to begin. The rise from October to early December was in the end an A rise and it’s been relabeled. It lasted and performed just like a normal A rise. The current decline is a B decline.  The low should be higher than the October low and it could end this month.  Once it does, gold will then be poised to head higher in a C rise.

The 65-week moving average has been our best barometer for this bull market, as you can see on Chart 2A. As long as gold stays above it at $585, the bull market since 2001 will be doing well. Once gold rises and stays above $630, a clear C rise will begin and gold could then test and likely surpass the May highs.

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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