Gold: What to Watch

02/29/2016 9:00 am EST

Focus: STOCKS

Mary Anne & Pamela Aden

Co-Editors, The Aden Forecast

A major gold reversal is taking place; this could mean the four-year bear market is over and a new bull market is beginning, argue Mary Anne and Pamela Aden, editors of The Aden Forecast.

Gold jumped out of the gate and soared to a one-year high in its best rise in a long time. Gold is now taking a breather, but it’s still been one of the best performing assets so far in 2016.

Safe haven demand has been the main driver. And this rise has been the best intermediate rise in the current bear market.

By jumping above $1200, it crossed two major bear market resistance levels. It rose above the prior peak last October for the first time since 2012.

And it’s now clearly crossed above its 23-month mega moving average for the first time in three years.

This rise is promising in a year that is set to become the pivotal year for gold. The falling oil price and steep losses in global stock markets are adding deflationary pressures to the world economy.

Gold also appears to be reasserting itself as the ultimate currency due to the growing uncertainty in the global economy.

Another bullish and impressive factor is the strong and ever growing demand for gold. The Chinese, Russians, Indians, and many former Soviet states have been steadily accumulating gold reserves.

Meanwhile, sales of gold coins by the US Mint soared 53% in January alone! Gold ETF holdings have also soared and prominent hedge funds are buying.

Plus, 2016 is the eight-year cycle low time period, the time when it’s most probable to see a low and turnaround from bear to bull.

In fact, with gold now turning bullish, it’s very possible that the low last December at $1050 was indeed the low for this bear market.

It's normal to see some weakness following such a steep rise. The upcoming decline will be key to this turnaround. So keep an eye on gold’s weakness this month or next.

If gold declines and stays below $1187, the next decline will be underway. Gold could decline to the $1160 level and it would still be very strong in a bottoming process. And it would provide a great time to buy new positions.

On the other hand, if gold can stay above the $1187-$1193 level (the 23-month moving average and the October high), the bear market will be ending and a new bull market will be starting.

So, for now, it’s best to wait before buying new positions. A major reversal will be reconfirmed based on how gold’s next decline unfolds. And if it’s as good as we suspect, then we’ll want to buy with both hands.

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