1. Print Friendly
  2. Bio

Gold’s Bull Market Still Looking Good

Thursday January 31, 2013 09:38

Well, the gold price did it again.... It’s now official, gold has been up for 12 consecutive years.  It closed December up 7% from a year ago.

Silver closed up over 8% from a year ago.  This indirectly says the stellar silver rise in 2010, which was its best year in the bull market, remains predominant.

Looking at gold’s higher close each year helps put pricing into perspective.  For example.... in 2012 closed at $1675.80.

This means that as long as gold closes 2013 above $1675.80 the bull will stay alive, reaching another annual record.  Now this doesn’t seem so hard for gold to do, especially in the historical environment we live in today and looking ahead to what 2013 has to deal with.

Some argue that gold’s bull market is on its last leg.  They feel it may have a hard time staying bullish as the year unfolds because stocks could be stiff competition, which will lessen the need for gold as a risk asset. 

We can understand this concern and others because gold hasn’t reached a record high in 16 months, in spite of the crises and debt dilemmas in the U.S. and Europe.  The ongoing massive currency creation, the Fed’s out of sight bond buying and adding trillions to the debt just to help hold off the crisis should be affecting the gold price by now.

But events always seem to take longer than anticipated.  Inflation will surely come, it’s just a matter of when.  The fact that gold hasn’t reached a new high doesn’t change our view of the bull market.

More important is gold’s lack of weakness.  It has only given back less than 20% of its 170% rise from the 2008 lows to the Sept 2011 record high.

This tells us the bull market is alive and well. Gold is simply the best investment considering the current historical, monetary, fiscal and economic environment.  Think of it as your financial insurance against all of today’s uncertainty. 

Gold’s big picture is bullish

It’s always a good idea to start the new year off looking at the big picture.  It clearly helps to keep focused on the important trends (see Chart 1).

First, note the steady rise gold has had since 2001.  It’s moving within a mega upchannel that’s been underway since the late 1960s.

This clearly shows how insignificant the decline of the last 16 months has been.  Gold has held firmly near the September highs on a big picture basis.

Meanwhile, the leading indicator, B, has been declining reaching the low areas of the bull market.  This is amazing to see the indicator at a great buying area, while gold holds firm, and with plenty of room to rise further.

Gold better than stock market
We all know the stock market outperformed the gold market last year.  And this year stocks continue to look good.  This is fine but the next chart shows that gold investors have no worries because the mega trend clearly continues to favor gold.

In fact, it’s saying gold is currently cheap compared to the stock market ... as cheap as it was 12 years ago!  Chart 2 shows the ratio of gold compared to the Dow Jones Industrials.  Here you can see the ratio changed to favor gold back in 2002 when it rose above its mega moving average trend.

The ratio has stayed consistently above this average since then, and even though it’s come down from the highs and could even decline further, the leading indicator (B) shows that gold is in a low area (cheap) versus the stock market.

And as long as the ratio stays above its moving average, the mega trend will favor gold over stocks.

Gold buying time
Gold is in a good buying time.  It fell further in December in a decline we call “B” and gold’s been basing above the Dec 20 low at $1646 (see Chart 3A).  This means gold has come down 8½% since its $1796 high on Oct 4.

Clearly, it’s been a moderate decline, which is characteristic of a B decline, and whichever way gold breaks out of this $1796 and $1646 area will tell us the next direction.

Gold is at an interesting juncture.  Its leading indicator is at a low area, and its mega 23 month moving average is now at $1650 and rising.  This means the Dec lows are a key level.  If it holds and gold closes back above its January high near $1690, we could see the Oct high tested.

A new C rise would then be underway, and C rises tend to be the best upmove in a bull market when gold rises in a record breaking leg up.  We’re getting closer to this time.

If the bull market remains as strong as it looks, don’t get left behind... finish buying your positions.

Once gold takes off, the bombed out gold shares will catch up.  They’ve been waiting for the green light from gold.  The stock market has already given its green light, so it’s now gold’s turn.

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.

Precious Metal Charts

Click to see this Precious Metal chart
  1. 24h
  2. 30D
  3. 60D
  4. 6M
  5. 1Y

Interactive Chart