The Road for Gold
07/01/2005 12:00 am EST
One of the most valuable aspects of the advice from Mary Anne and Pamela Aden is that they constantly reassess their outlook to provide investors with a clear vision of the various roads ahead. Here they describe the best ways to approach the road for gold.
"Gold's major over four-year uptrend, while tested, remains underway. Some argue that gold and other metals are poised to soften this year due to growing worldwide recession or deflationary pressures. Plus, with the dollar turning bullish for the first time in 3½ years, coming on the heels of the gold shares fall that will also put pressure on these markets. These are valid arguments. But the major trend is most important and as long as it remains up, we’ll stay invested in gold. The upcoming rise will tell us a lot about gold’s overall strength (or the lack of it). If the dollar rise is sustained and deflationary forces take hold, for example, even temporarily, it could put downward pressure on gold and the other metals. We realize this, but if it happens it’ll likely be temporary in the big picture.
"There are so many reasons, however, why gold has a bright future when looking over the potential valley. Nothing has changed and it’s only getting worse. In the end, gold will be the market of choice as it’s always been in times of uncertainty, crisis, and economic instability. It’s coming, it’s just a matter of when. Looking back at the gold’s big bullish picture since 1967, we see that a major turning point for gold occurred in 2001 and that level is unlikely to be seen again. The two key lows were in 1969 and 2001, which is the basis for the mega uptrend. In a worst case, if gold were to turn down from its 65-week moving average now at $416, it could possibly decline to this uptrend near $375. But if it does, while it would be important for us now, it would be insignificant within the mega upchannel.
"But first things first, and for now the gold price is stepping higher within the bull market rise. If the upcoming rises this year don’t reach a new high, then the bull market strength will be in question. For now, the price action is telling us all is okay because gold’s recent low ended on June 1 at $415.30, which was above both its 65-week moving average and the February 8 low. Thus, from our assessment, an intermediate rise is now underway. If gold moves to a new high above the December high near $456. If this happens, the bull market will be alive and well. On the other hand, if the February and June lows end up being a double bottom, then gold still has more consolidation to do, which would tie in with the normally slow summer months. We’ll see what happens, but for now gold is in a renewed rise above $422.
"Meanwhile, we would note that silver bottomed in early May, a month before gold, and it’s holding above its moving average at $6.83. A renewed rise is underway and silver is strong above $7.10. If silver now breaks above its December high near $8, it’ll be breaking above an important downtrend. Its next resistance would then be at $8.20, the April 2004 high, which is the high for the bull market so far. Silver shares are also bouncing up. Keep your silver and silver shares as long as the major trend is up.
"Overall, the gold arena is bouncing up from the May lows and a renewed rise is starting. The major trends remain up and while there are some signs of caution, we’ll stay with our positions as long as the major trends remain up. The metals themselves look better than the shares, but the shares could outperform during this intermediate rise because they are rising from a clear oversold area. Indeed, the gold shares to gold ratio is bouncing up, showing that gold shares will likely outperform gold during the upcoming rise. We recommend keeping a 50% position in gold and silver, as well as in the exchange traded funds, iShares Comex Gold (IAU ASE) and streeTracks Gold (GLD NYSE). For mutual funds, we would also point to US Global Resources (PSPFX) and US Global Minerals (UNWPX). Among those looking to establish new positions in individual stocks, we would suggest GoldCorp (GG NYSE) and Silver Standard (SSRI NASDAQ), as these two are the best performers."