...and the "Golden" Sisters
08/12/2005 12:00 am EST
"Gold finally did it," notes Mary Anne and Pamela Aden. "For the first time in this bull market, gold is coming into its own, breaking away from the dollar. The ultimate currency of the world is shining and more investors are taking notice." Here's their latest outlook.
"Gold and the dollar have almost always moved in opposite directions. The weak dollar kept upward pressure on gold and that’s certainly been the case in recent years. But gold is now rising on its own, not simply because of the dollar. It’s going its own way and this is bullish action. Importantly, once gold starts rising against all the currencies, it’ll be important because the bull market will be moving into a different phase and that’s currently happening. This tells us the smart money is now buying gold as an alternative to paper currencies. And with gold hitting new highs in other currencies, it’s also looking good to European and Asian investors, especially now that few currencies are attractive.
"What are the choices? Even though the US dollar is rising, the fundamentals have not changed. The deficits keep getting bigger and the US is the largest debtor nation in the world. Europe’s future is uncertain, Japan is wrestling with deflation pressures, and Britain is slowing. These are the world’s biggest currencies. So what’s an investor to do? Increasingly they’re turning to gold, which is real money and it has been for thousands of years. Gold is emerging as an attractive investment category and the mega trend we’ve been discussing, out of paper assets like stocks and into hard assets like gold, is starting to become more noticeable. This is the big picture and we believe this will continue as time goes on.
"We’ve often said that tangible assets have been taking over paper financial assets for several years now. Look no further than gold compared to stocks. The mega trend changed three years ago. This means gold is stronger than stocks, it’s the better investment and since these trends don’t change often, that’ll likely continue in the years ahead. We all know that growing world demand and tight supply for oil, copper, uranium, and the resource commodities has been keeping prices up, especially with China and India’s added demand. But India is also the world’s biggest buyer of gold and China is following in their footsteps because the government has been urging its citizens to buy gold. And with the rise in living standards in both China and India, this demand for gold and commodities will grow for years to come.
"We’ve been taking this bull market in gold one step at a time and so far the steps are in place. Gold’s been in a major rise since 2001. It’s also been above its 65-week moving average since then, which provides major bullish support at $417. Gold moved up into the third step last December when it reached a 16-year high where it’s been holding since then. The lower side of the third step is the 1990 and 1996 highs near $420 and $415, respectively, which happen to coincide with the 65-week moving average. So it’ll now be important to see if gold continues to hold above these levels. If so, its next target will be the upper side of the third step at $500. Once gold surpasses $500, it could explode upward to the $850 peak. On the other hand, if gold has a set back, we believe it will be temporary.
"Overall, gold is poised to rise either now or by the end of the summer. Gold shares are still oversold and have plenty of room to rise further. The major trends remain solidly up in the gold arena and, most important, gold is starting to break away from the dollar for the first time in years. And it’s happening at a time when the dollar is extremely overbought on an intermediate basis. We recommend keeping a 50% position in gold and silver bullion, as well as iShares Comex Gold Trust (IAU ASE), and streeTRACKS Gold Trust (GLD NYSE). Buy new positions in these as well as the best performers, which are: GoldCorp (GG NYSE), Royal Gold (RGLD NASDAQ), Barrick Gold (ABX NYSE) as well as the resource shares: Cameco (CCJ NYSE), US Global Resources (PSPFX), BHP Billiton (BHP NYSE), and Rio Tinto (RTP NYSE). Silver Standard (SSRI NASDAQ) is a good play for silver."
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