Gold Is Poised for a Breakout

09/15/2009 1:30 pm EST

Focus: MARKETS

Mary Anne & Pamela Aden

Co-Editors, The Aden Forecast

Pamela and Mary Anne Aden, editors of The Aden Forecast, say this is a good time of the year for gold, and the metal looks very strong technically, so it could hit new highs.

The gold price has tested the $1,000 level twice since March 2008, when it first reached a record high, and this level is currently being tested for the third time. If gold now closes clearly above $1,004, it will be breaking into record-high territory. (It closed slightly above that Friday, before selling off a bit Monday—Editor.)

This would confirm a stronger phase of the ongoing bull market, and gold could then continue up to near the $1,400 level.

September is actually the best month for such a rise—seasonally. It’s the time when gold is bought in India for the wedding season, and essentially in the jewelry industry. The gold price is the central bankers’ only real discipline.

The Federal Reserve has created more credit and injected the most money into the system this year than any other time in its 95-year history to save the economy from a deflationary collapse. But the Fed’s actions, together with President Obama’s spending and the massive stimulus from central banks around the world, nearly guarantees that the result will be inflation.

The economy is recovering at a heavy price. And this month’s gold rise suggests that inflation will eventually prevail. This will be especially true if gold clearly breaks out to record highs.
 
Once gold embarks on a stronger phase of the bull market, it’s not inconceivable that gold could eventually reach the $2,000 to even the $5,000 level before the mega rise is over in the years ahead.

The stock market and currencies have been good investments, [but] gold is the best investment. Gold has been steadily stronger than the Dow Jones Industrial Average and the US bond market since 2001. Both ratios have been moving up since rising above the megatrend, the 80-month moving average, in 2003. This means that gold is solidly stronger and its gains have been greater.

Gold [mining] shares have jumped up even more than gold in the recent run-up. Many gold shares gained about 10% in just two days! Interestingly, while September is gold’s best performance month, it’s also on average when gold shares tend to outperform gold, and so far this month has not been an exception.

Gold shares have been stronger than gold since the lows last November. Gold shares currently have great potential. The leading indicator for the HUI gold share index is rising from a major low area that in the past has preceded a great rise in gold shares, like in 2001 and 2005.

So far in this decade, there has been a great rise in gold shares every four years. And the fourth year is now upon us. For now, if the 206 level is surpassed on the XAU gold share index, it will be in new bull market high territory and super bullish. (It closed at around 167 Monday—Editor.)

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