GOLD: The ultimate currency
The fundamental case for a rising gold price
is solid. It's important to remember that gold is the ultimate
currency. It's been accepted as money for 5000 years. And
gold's main reason to rise or fall continues to be based on
the currencies. With the U.S. Dollar being the dominant currency
in the world, it stands to reason that gold moves opposite
to the Dollar.
Economic unrest is important too. But you could
say, when the Dollar is falling it's because there's trouble
in the economy. And that's precisely when gold rises.
Take the 1970s, for example, after Nixon closed
the gold window. The Dollar began to float in the free market
and the result was a falling Dollar and soaring gold all during
the 1970s. Rising inflation was the problem then, which helped
fuel both the Dollar fall and the rise in gold. But gold's
basic reason for rising was due to Dollar weakness.
Gold then rose in 1985-87 when the Dollar fell,
and again in the early to mid-1990s. But thereafter the Dollar
was strong. Gold was not needed during the strong Dollar era
and it declined.
That changed last year. The Dollar peaked 15
months ago and it's been falling in a bear market since then.
In other words, gold has been rising this year primarily because
the Dollar has been falling. The overall economic environment
has fueled the bull market in gold, but as long as the Dollar
stays weak, gold will continue to be a good investment.
WATCH $330 GOLD
As you know, gold and gold shares had a great
rise during the first half of this year. Gold rose 19% and
gold shares soared 66%. This rise caused a lot of attention,
especially when gold shares became the best performing sector.
 Since
June, however, gold's been consolidating this year's rise.
It tried and failed to surpass $330 in June and again in September,
but the $330 level hasn't been an easy level to break because
it's the next vital step in the bull market. When gold rises
and stays above $330, the bull will be entering a stronger
phase and this is very important to keep an eye on.
Chart 1 shows you why. It shows the gold
price since 1982. The horizontal lines mark the major resistance
levels in gold over the last 20 years.
The only two decent rises in gold's big picture
since the explosive peak in 1980 were in 1985-87 and 1993-96.
We call these rises #1 and they're the best rises in gold's
major cycle. In both cases, however, gold resisted at its
prior peak (#3). In other words, gold's been unable to rise
above its prior peak since 1980.
The reason we're stressing this is because gold
is at a similar level today. It's been resisting at the prior
peak (#3 in 1999) since June. This means if gold can now stay
above its 65-week moving average at $298 during weakness,
and it goes on to break above $330 during the upcoming intermediate
rise, gold will be flexing its muscles for the first time
since 1980.
8 YEAR CYCLE COINCIDING
Another major cycle in gold's bullish corner
is the eight year cycle (see Chart 1). The February, 2001
low marked the fourth consecutive eight year cycle low since
1969. And gold's been moving the same way it normally does
following each eight year low. Gold tends to rise for three
to five years after the low. Since gold's been rising for
one year and nine months so far, this means it could still
rise another year or two and the average time we could see
a peak in gold would be in 2004.
GOLD: GOOD MEDIUM-TERM TOO
 The
good news is, gold's been unwilling to break below $300. It's
been holding near or above $312-$315 since resisting near
$330 in September. On a medium term basis, this shows strength.
Our subscribers know our intermediate indicator
well shown on Chart 2B. Gold is full of cycles and
this one identifies the medium-term. The As and Cs identify
gold rises, and the Bs and Ds coincide with intermediate declines.
The latest "A" rise from the July 29 low to
the Sept 24 high was an insignificant rise (see Chart 2A).
It's the first time this year gold didn't rise to a new bull
market high. But this isn't necessarily negative in the big
picture.
As you can see, a B decline started in September
and it may already be over. If it is, this would be very bullish
action. So keep an eye on $315. If gold can stay above this
level, the B decline was short and mild and a C rise is just
getting started, and C rises tend to be the best and most
bullish rises in the intermediate cycle.
Gold is looking good on a big, medium and short-term
basis. We're keeping our eyes peeled because we're now at
a critical point in the bull market.
*******
Mary Anne and Pamela Aden are internationally
known investment analysts and editors of The Aden Forecast,
a market newsletter providing specific forecasts on gold,
gold shares and other major markets. Click here to visit their
website at http://www.adenforecast.com
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