Gold Still Shines Brightly

07/13/2010 2:00 pm EST

Focus: MARKETS

Mary Anne & Pamela Aden

Co-Editors, The Aden Forecast

Mary Anne and Pamela Aden, editors of the Aden Forecast, say gold may sell off a bit during this weak season, but it remains in a strong up trend.

Stay in gold. Despite its recent volatility, it's the one investment that benefits during times of uncertainty. 

Gold, silver, and metals-related investments have by far been our top-performing sector since we first recommended them over the past decade. This year has not been an exception. Again, they've been the top performing group.

Gold buying is fear buying, and we have lots to be fearful about these days. This is basically why we're seeing gold hit record highs these last few months when almost everything else is falling.

Central banks were net buyers of gold in 2009, which is very powerful because it means they do not want to sell their gold like before. In 2009, central banks were buying more than they were selling and 2010 will surely be similar.

European investors were also running to gold as the Greek debt crisis took hold. And it's not just Europe; gold is relevant again around the world because the other sectors are weak. This is further enhancing gold's lure as more mainstream types start to get gold fever, which is one reason why the US Mint is running short of gold coins. The sales of the one-ounce gold Eagle coin tripled in May from the prior month.

It's also reported that gold's ETF, the SPDR Gold Trust (NYSEArca: GLD), is holding a record 42 million ounces, worth over $51 billion. When you think that the amount of gold held in ETFs has jumped almost fourfold since 2005, you can understand why vault space in general is getting tight. There's not enough space to store so much gold.

The 1970s saw gold rise tenfold. Today, gold has only risen 400% in nine years. This good, solid, steady, and consistent growth provides a very bullish backdrop for a further rise in gold.

In fact, it's been almost two years now since we've seen a decent downward correction in gold. The March to November 2008 decline, when gold lost almost 30%, was the last great buying opportunity.

Gold's risen 80% since that November low without more than a 14% decline. This super rise caused the bull market to move into a stronger phase last September when the gold price reached the first record high that was well above the $1000+ record highs of 2008-09.

It's been a very stellar rise indeed, but [the recent] decline is starting to look like a normal correction could occur, especially considering that the summer months tend to be slow for gold.

It would be normal at this time for gold to possibly decline to test its 65-week moving average [at $1,060 an ounce]. If gold ends the year above $1,118, then 2010 will be the tenth consecutive year of gains for the gold price.

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