Dec 19 2011 4:10PM

As the year draws to a close, it’s easy to say that it’s been a difficult one. That’s mainly because of the high volatility in the markets, in reaction to the daily ups and downs on the world stage.

IT’S COMPLICATED

The overall global environment remains complicated, and it’s still having a strong effect on all of the markets (see Chart 1).

Currently, the Fed and other big central banks have come to the world’s rescue, at least for the time being. They’re basically bailing out Europe but there will be a price to pay.

All of this drama and volatility have both raised many questions.  And following are some of the most frequently asked questions we’ve recently received…

Q. If gold is a “safe haven,” why does it go up and down so often with the stock market?

A. Great question and that has been the case lately. This happens at times but over the long haul, gold is the ultimate safe haven and it will go its own way, based on the underlying fundamentals. Over the past decade, for example, gold has risen 645% while the Dow Industrials has only gained 13%. We believe this will continue based on the vulnerable global debt situation, the weak currency markets and many other factors we’ve often discussed. In fact, gold has maintained its safe haven status for thousands of years and there is not another investment, including any currency, that can make that claim.

Q. When you say, use weakness to accumulate gold, does that also apply to silver?

A. Yes.

Q.Is it prudent to invest in the ETFs for gold and silver (GLD and SLV), considering they may not have the necessary amount of metals to cover the shares issued?

A. Yes, this is a risk. Many say there’s proof the metals are there, others are doubtful. The same is true of the gold held by the U.S... These days there’s reason to question just about everything. That’s why we always say, owning physical gold and silver is your best and safest bet. Also, keep it close to you rather than having a third party hold it for you. While the ETFs provide an easy way to buy and profit from the rises in gold and silver, think of them as an index, like the Dow Industrials, rather than as a way to buy gold or silver.

Q. Is gold manipulated?

A. Probably yes, at times. But since the major trend is always more powerful, manipulation effects will be temporary.

Q. How can I learn more about technical analysis?

A. Two great books are How Charts Can Help You in the Stock Market by William Jiler and Technical Analysis of Stock Trends by Robert Edwards and John Magee. They were published years ago but they’re the best for those who want to learn the basics of technical analysis.

TECHNICAL UPDATE

The metals and their shares also fell sharply last week as gold dropped below its September low.

This means a steeper D decline in gold is underway.  That is, the decline since September is becoming a full on D decline, which is a first in three years.  Chart 2 shows gold now approaching its key 65-week moving average.  Gold could still decline further, to possibly test this major trend, and if it does this would be normal for a D decline move. If gold tests its 65-week moving average near $1525, it would be a 20% decline.

We know this decline is unnerving but keep focused on the big picture and hold your open positions.  Gold is oversold and this is still the time to be buying and accumulating during weakness.

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

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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