A Healthy, Normal Correction

The Gold Reports Talks with Pamela Aden, of The Aden Forecast               The Gold Report March , 2004 www.theaureport.com

Newsletter writers Pamela and Mary Anne Aden are well-known for their monthly publication, The Aden Forecast. Pamela Aden shares her thoughts with us on what she sees as a healthy, normal correction.

TGR: In your March update, you mention that the gold has been declining since January 9th in what you call a “D” decline. Today the gold price is about $404. So I wanted to ask you to define the term for us, and then ask where you think we are with this D decline.

PA: D declines tend to be the worst declines in the cycle. But in a bull market its low will be higher than the prior “B” low, which was last July’s low near $343. The 65-week moving average is the key trend, which means the current decline should hold above $370. D declines tend to last 9 to 12 weeks, so we could see a low at any time. The decline will be over when gold closes and stays above $405. Overall, the D decline has been mild. It’s just correcting the sharp rise, when gold rose almost nonstop from last July to January, with silver doing even better. Silver is currently hitting new highs and it may be leading gold out of the decline.

TGR: You think this is still a long-term bull market, and what we’re experiencing is just a healthy, normal correction.

PA: Definitely.

TGR: So are you advising investors today to wait until we know whether there will be a further decline, or to buy gold and silver stocks now?

PA: I think the safest and best way is to average in. If we had a full downward correction, of course, it would be ideal to buy near the low, but we may not get one. And for that reason, it’s healthy to average in. My advice is to take advantage of weakness, or just average in on a regular basis during this weak period.

TGR: Have you read Ian McAvity’s latest report where he says that he sees prices going lower in 2004, that we will have a bigger correction? And that we’re probably not going to resume the upside until 2005?

PA: I suppose that’s a possibility. What’s interesting is that the coming months are going to be the moment of truth for gold. If the pricing trends mirror the movements of the ‘80s and ‘90s, then what we’ve had so far fits right in. If we see something more in line with the ‘70s surging bull market, then we have several years to go – say five or six years for the bull market. So it’s very important to see if the bull market is going to stay intact, and everything points to the fact that it will. When you just look at the fundamental factors around the world, and you look at the reality of the situation in the U.S., everything just seems to be pointing to the fact that we’re going to have an upside. What is clear is that we’re not living in ordinary times.

What Ian seems to be saying is that we could see a sideways, but not necessarily a bear market this year, before we start getting into the full bull market. This could be a decade-long bull market, which started three years ago.

But we have our indicators and we are watching them closely. The 65-week moving averages works very well in identifying the major trends, so that’s one indicator that we place importance on. Right now it is at $370, and it’s moving up. As long as gold stays above that, the major trend is up. The intermediate move are also important, because many times they will tell us if the market, on a major trend basis, is getting tired or not. So far, the steps are in place. The bull market is underway and we’re seeing a consolidation secondary trend that looks like it’s nearing an end.

TGR: You have also pointed out how the trends over these next few months will help us see whether we are in a market similar to that of the ‘80s and ‘90s – which means the gold price would top out at some point – or if this current market is more like the ‘70s market, which ended in 1979 or 1980, with gold hitting $800.

PA: Yes, in fact I just created a chart that overlaid the current bull market so far, compared to the bull market of the ‘70s — indexed to 100 — to compare the percentage growth of this bull market to the ‘70s. You see gold moving very similarly to how it did in the early ‘70s.

At this point in the bull market in the ‘70s, gold was a bit higher than it is now. But really the movements are very similar, and it’s interesting and exciting to see whether that’s the type of upside potential we can look forward to over the next five to seven years. And yes, I think we’re in a bull market. We could have some months of boredom, months of consolidation, but that’s all part of it. As long as the major trend is up, and the intermediate trends are bullish, we’re staying with it, and we think it has a lot further to go.

TGR: What about silver? You’ve said that it’s better than gold – you actually even wrote that as a subhead, “Silver Better than Gold.” Can you talk a little bit about the factors that you think have gone into silver’s activity?

PA: Silver rose 45% just from October to March. Silver tends to be a sleeper but once it wakes up, it soars. This means if silver now stays above its recent March 2nd high at $6.91, it’ll be in a position to soar. Then if it closes above its 1998 high near $7.30, it could rise to the 1987 high near $9.50. These are the numbers we’re watching on the upside. The fundamentals have been very favorable for silver for many years. And they are perhaps even more favorable now than they were a couple of years ago, when you consider the industrial side of silver.
Silver is stronger than gold. So we’re recommending more silver than gold. We like silver coins and silver shares such as Silver Standard, Coeur d’Alene and Pan American. These are our favorites.

TGR: Do you see gold and silver moving in tandem, with the potential for a correction, or just sideways movement, in both? Or do you see silver having more strength?

PA: Well, so far, we haven’t really had a correction in silver. It’s overbought but it could stay overbought while silver keeps rising. It hasn’t even wanted to break a five-week moving average, which means silver is very strong above $6.50.

TGR: Could you talk now about some of the gold shares you recommend? Among the larger companies, I see that you like Newmont, Anglo Gold, Barrick, Glamis, Golden Star, and Placer Dome, just to name a few. Which ones do you especially like right now?

PA: I always like Newmont for a core position and knowing that probably when mainstream investors start buying more, they’re going to buy that one.

TGR: Now, when you say, “mainstream” I assume you mean the average investor?

PA: Yes, the average investor hasn’t even really started coming in at all. When gold becomes more popular, when it starts gaining more attention, Newmont is going to benefit from that.

TGR: What are some of the other gold stocks that you like?

PA: Cambior has been doing well. We also like Glamis Gold and Placer. Two funds that have been doing well are: the US Global Gold Share Fund and the Global Resource Fund and of course, we like gold coins.

(3/10/04)

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