Lows In The Making
Monday July 23, 2012 14:32
The markets have become demanding (or should we say, desperate). In spite of the stimulus by four central banks, and the Eurozone bailing out their banks, the markets want more.
More interesting, the gold price has held above its December lows. It’s holding firm, in spite of it all and especially considering the Summer months are seasonally slow months for gold.
It’s also not breaking down while the dollar strengthens. This in itself is a bullish sign. It seems to be telling us that more stimulus is coming.
SUMMER: Likely bottom
The June months tend to historically see the most lows for gold. The next popular low month is August. So again, we’ll be watching the $1536 lows carefully during these lazy days of Summer.
On the upside, if gold breaks above $1650 and stays there, the worst will be behind us. Then $1700, $1800 and $1900 will be the next stepping stones in the renewed rise. Record high territory would confirm the making of a strong leg upward.
HOW HIGH?
How high is anyone’s guess.
It all depends on the explosive stage in the bull market. That phase is still to come and
Chart 1 provides a good example of this.
As you can see, gold has been moving within a mega upchannel since 1970. The gold rise since 2001 still has a ways to go before reaching the top side of this mega uptrend.
Note on the top chart that gold moved into the upper side of the mega channel when it burst into record territory in September 2009. This was just six months after QE first started in March 2009.
When gold reached the $1900 record level last September, the leading indicator (below) rose to the normal high area and it’s been declining since then, now approaching the uptrend and zero line.
This is the meat of the matter… the bottom line.
The indicator is telling us that even though gold has risen in a clear consistent bull market for 11 years now, it has yet to reach bubble explosive levels.
Those moves would be more like what we saw in the 1970s. In those days, the full bull market rose 2300%.
The current bull market since 2001 has only gained 660%... a far cry from the 1970s level.
Chart 2 shows this comparison well.
You can see that today’s bull market hasn’t yet begun to move in bubble explosive conditions.
It’s getting closer though and
the timing suggests we could see the start of the bubble phase by next year.
There really is no fever like gold fever, and the fever hasn’t started yet. For example,
for this bull market to gain 2300%, we’d see a $6000 gold price, which would blow the gold price well above the mega upchannel.
Today, however, the mood is down. Many are discouraged by the decline of the last almost 11 months. It’s really not because of the 19+% decline, it’s the length of time that’s taken the enthusiasm out of the bull market.
But don’t be discouraged. If this sluggishness lasts another month or even two, it’s fine and new positions should be bought on weakness.
Buy on weakness and hold... a good strategy.
by Mary Anne & Pamela Aden,
April 27, 2012
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