Gold: The Big Picture

07/17/2013 8:00 am EST

Focus: STRATEGIES

Mary Anne & Pamela Aden

Co-Editors, The Aden Forecast

The metals sector is bombed out and extremely oversold, and a rebound rise may be getting started. They’re still vulnerable, however, but they’re looking better, suggest Mary Anne and Pamela Aden, co-editors of The Aden Forecast.

This 36% fall was the steepest in the 12-year bull market. The worst one prior to this was an almost 30% decline in 2008.

But looking at the full bull market rise from 2001 to 2011, gold gained over 660%, so a 36% decline isn’t bad from that perspective.

The strong demand for gold, and how much it has grown over the years, has not gone away. International investors, central banks, and corporations...they’re all looking to buy gold and these low summer months are likely providing the best price.

It’s time to take a hard look at gold’s big picture. Gold has had a consistent low area nearly every eight years. February 2001 saw an eight-year low, following a modest gold rise in 1996. Gold then rose sharply until it fell to the next low in November 2008, which was just three months shy of the eight-year mark.

Gold is now almost five years closer to the next major eight-year low. This doesn’t mean gold is going down until then. It’s simply saying that 2015 or early 2016 is a likely time period for the next key low area in gold.

There are always important major rises in-between the lows. During major bull markets, gold tends to stay above the high reached prior to the eight-year low area. In today’s case, it’s saying gold should stay above the $1,000 high of 2008.

We’ll see what happens, but if our ultimate downside target of $1,000 is reached, it would be a 50% decline from the highs, and it would match the fall in 1976.

More important now is gold’s extreme case of being oversold, the most since the 2008 lows. This means the downside lows are getting closer.

We could see the $1,600 level tested in this upcoming rise. We aren’t saying it can’t go higher, it could. But it’s more likely we won’t see the record highs tested.

But we’re getting ahead of ourselves. Let’s first see how the current decline fares. Will $1,200 hold? We’ll see, but keep in mind, gold and the sector are extremely oversold, so it probably will. The first sign of renewed strength would be a sustained rise above $1,320.

Silver has declined a whopping almost 62% since its April 2011 peak, taking over two years to get there.

This is steep indeed but, like gold, when comparing it to the almost 1000% super rise from the 2001 low to the peak, the proportion is not bad. It took this type of fall to remove the excess of the rise, and more.

Silver is now approaching its up channel support near the $17-$18 level. And its medium-term indicator has fallen to an extreme oversold area, the most since 2008. That is, silver’s downside is limited. And a move over $20 would suggest a rebound rise is underway.

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