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Get Ready for Take Off!

Thursday August 23, 2012 14:18

Gold is on the rise after months of sluggishness.

After all, it’s been almost a year since the $1900+ record high was reached, yet the gold price hasn’t declined even 20%. Think about it... considering the 170% gold rise (from the 2008 low to the year ago record peak), gold has only given back 19+%.

Gold’s strength reinforces the reality of an unbalanced financial world.

Accumulation time is drawing to a close, but it’s still not too late to buy new positions.

Gold will now look promising by staying above $1630, but it’ll be clearly out of the woods above its 65-week moving average at $1650. How high could gold go?

GOLD TIMING: Bottom in & poised to rise further

Many of you know the ins and outs of our favorite intermediate indicator. But for the benefit of new readers and to refresh the main points with older readers, we’d like to review it.

This is pretty technical. But if you follow along we think you’ll agree that this indicator helps measure the timing and growth potential for each intermediate gold rise, as well as the declines. It’s worked well over the years, including during the bull market of the 1970s.

Bear markets also have these intermediate moves, but with subtle differences.

Gold is a cyclical market and its moves tell us a lot about the world and other markets. Right now, it’s telling us the 11 year bull market is alive and well.

This leading indicator is shown on the following Chart Overall, gold has intermediate moves we call the A through D pattern. The As and Cs identify the gold rises, and the Bs and Ds identify gold’s declines.

During a bull market, the C rises tend to be the best leg up in the bull market when gold shoots up to a record high. In fact, this reinforces the strength in the bull market because if record highs are not reached, it would raise a red flag.

The A rises are normally moderate. But if an A rise reaches a record high, then it’s reinforcing an exceptionally strong bull market. B declines also tend to be moderate, and together with the A rises, you could say it’s a consolidation time... preparing for the next strong C rise.

The wild moves tend to be the C rises and the D declines. D declines are the sharpest when gold corrects the most.

D declines usually fall to test the 65-week moving average during a bull market.  It wasn’t until 2008 that gold’s D decline broke clearly below this moving average for the first time in the current bull market.

The intensity of the crisis took hold, but it didn’t take long for gold to jump back up. And we don’t think it’s a coincidence that gold then went on to have the longest and best C rise in the bull market!  

Gold rose almost 120% from April 09 to September 11... a C rise twice as strong and twice as long as all of the C rises since 2001.

This rise has essentially coincided with the ongoing unprecedented problems we have in the world.

The best C rise before that was in 2005-06 when gold shot up almost 58%, followed by the 2007-08 rise of nearly 56%.

SO WHERE ARE WE NOW?

Here’s a twist and some food for thought...  Gold fell from its September record high almost a year ago and it declined nearly 20% to its December low. This fall alone could’ve been a D decline because the indicator fell to the low area and gold tested its moving average.  The percentage decline was also in line with former D declines.

Then the 16% rise to the February high was within reason for an A rise, while the 14% decline from the February highs to the recent May lows was also normal for a B decline.

If this proves to be the case, and the B low is complete, then gold is getting ready to take off in another C rise. And if the bull market stays true to form, we’ll see a record high reached before the leg up is over!

Once gold closes and stays above $1650, we could see it jump up to the $1700 level. Above $1700 means $1800 would be the next target.

If gold rises in a C rise, similar to the 2006-2008 C rise, gold could then reach record highs near the $2200 - $2400 level.

By Mary Anne & Pamela Aden,
Courtesy of www.adenforecast.com

Mary Anne & Pamela Aden are well known analysts and editors of The Aden Forecast, a market newsletter named 2010 Letter of the Year by MarketWatch, which provides specific forecasts and recommendations on gold, stocks, interest rates and the other major markets. For more information, go to www.adenforecast.com

Disclaimer: The views expressed in this article are those of the author and may not reflect those of Kitco Metals Inc. The author has made every effort to ensure accuracy of information provided; however, neither Kitco Metals Inc. nor the author can guarantee such accuracy. This article is strictly for informational purposes only. It is not a solicitation to make any exchange in precious metal products, commodities, securities or other financial instruments. Kitco Metals Inc. and the author of this article do not accept culpability for losses and/ or damages arising from the use of this publication.

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