Gold’s Defining Moment
09/16/2008 12:00 am EST
Pamela and Mary Anne Aden, editors of The Aden Forecast, say gold is testing support levels in its seven-year bull market.
The gold price is at a critical juncture as it’s seriously testing its bull market trend for the first time in seven years.
Gold’s bull market was first confirmed back in August 2001, when it crossed above its 65-week moving average. Now, for the first time since then, gold is below it, which is a warning that a trend change may be in the works. But gold is also very oversold, indicating that the downside is limited.
This 22% decline since the March peak is similar to the decline in 2006 when gold also lost 22% and it took about the same time to develop. These were the two worst intermediate declines in gold’s seven-year bull market.
So, this may seem like a good buying opportunity, but only as long as the bull market stays intact. Considering that gold’s bull market is almost eight years old, it wouldn’t be unusual to see gold enter a year-long or so bear market, similar to the one in the mid-1970s.
Right now, a bullish scenario would be for gold to rise from the current low. If gold stays near its August 15th low at $788 and rises back above the average at $828, the decline would clearly be over. (It traded around $783 Monday—Editor.) Gold could then fluctuate between the March closing high at $1004 and the 65-week moving average. A reconfirmation of the bull market would occur if the next rise jumps up to record highs.
Gold has been in a mega-uptrend and channel since 1967. This mega-move is super- bullish and gold is poised to rise, probably into the thousands before the mega-move is over in the years ahead. Gold tends to reach a low period about every eight years (1976, 1985, 1993, and 2001). Based on this eight-year low pattern (give or take six months), we could see a low occur next February or in August 2009.
A bearish scenario would be if gold stays below its 65-week moving average and closes clearly below its August 15th low at $788. This would confirm that gold could stay under pressure for months to come. In that case, the up channel support since 2001 would provide support at the $600 to $650 level. This would then be our down side target.
This would mean a 35%—40% decline from gold’s March record peak. If this were to happen, we’d still feel confident about the mega gold and commodity up trends and rising prices, due to the extremely strong fundamentals in the years to come.
The metals and resource sectors are collapsing, and gold has clearly turned bearish for the first time in seven years. This is a major trend change that could last another six months to a year. We now recommend selling and lowering your metals, resource, and energy positions by half.