by The Aden Sisters
Dec 1, 2004
"Gold $500?" -CBSMW
Pam Aden, of The Aden Forecast, says there's more upside potential for gold prices and tells how small investors can play it.
Here are the Aden Sisters (the original "Golden Girls") analysis from Sep 22, 2004:
Gold has been quiet lately, but not to worry. The Summer consolidation time looks like it's coming to an end. Gold shares broke out today on the upside. They're likely leading gold as they often do and once gold gets going, it'll be important to see if it reaches a new bull market high.
If it does, gold will be showing great strength as it will be entering a stronger phase in the ongoing bull market. And when you stand back and look at gold's big picture, you can see a potentially explosive rise coming in the years ahead (see Chart 1).
Note the massive uptrending channel gold has formed since 1967. The 1974 and 1987 peaks mark the top of the channel while the 1969 and 2001 lows establish the bottom. The mid-line connects the 1976 and 1993 lows.
When gold hit its 1980 peak it overshot the top of the upchannel. Who would've thought in those days that gold wouldn't reach a bottom for another 21 years in 2001 as it moved from the top of the channel to the bottom.
The worst part of the bear market was during the tech boom from 1996 to 2001 when gold fell to new bear market lows. The negative sentiment became so ingrained it's still in the market today, despite the 68% rise since 2001 and the fact that gold broke above its 21 year downtrend, which was very bullish. Sentiment is slowly changing, however, and it'll continue to change with each new bull market high.
For now, let's watch for a new high above $430. Assuming this huge channel stays intact, once gold breaks above this level, $500 will be the next target. After that, the 1980 highs ($850) would be the next stop on this big picture. This level would also coincide with gold reaching the mid-channel line.
So the question is, when is a likely time for gold to rise above $430? Our medium-term leading indicator on Chart 2B serves well in identifying the intermediate moves in the gold price and it'll help determine the timing of the next upmove. The As and Cs coincide with gold's rises and the Bs and Ds identify gold's intermediate declines.
D declines are the worst declines in the pattern, which already happened last May (see Chart 2A). An A rise then began and gold rose moderately, which is normal for A rises. Next, gold declined in a B decline, which is still in process, but these also tend to be moderate. This means a C rise will follow once the current B decline is over.
As we've mentioned in previous articles, C rises tend to be the best rise in the A through D pattern. During a bull market, C rises take gold to new highs. So at worst we could now see gold back and fill a while longer, similar to the mid-2002 time period. And at best, gold could soon move up above the April peak of $430.
The bottom line is, either way, gold is poised to rise in its best C rise in the coming months and $430 will likely be surpassed before year end.
GOLD & OIL: Move together
Gold and oil, for instance, tend to move together. In fact, as oil was soaring above $45, it started to boost gold. Chart 3 shows this relationship since 1985 and you'll see that gold tends to lead oil.
Gold and oil are both in major uptrends above $391 and $35.50, respectively, and as long as that's the case, prices are going higher and one will likely feed on the other. Oil has become volatile since it approached $50, but with global consumption the largest in nearly 30 years, it'll likely stay in a major uptrend.
SILVER BULLISH TOO!
And it's not only gold. Silver reached a four month high last month and it's bullish above $5.90. Silver is holding well above its 65-week moving average, on the higher side of the upchannel. This suggests silver will stay bullish.
Silver is also stronger than gold as the ratio remains above its moving average in a trend that started last year. This means silver will continue to outperform gold.
Mary Anne & Pamela Aden are internationally known analysts and editors of The Aden Forecast, a market newsletter providing specific forecasts on gold, gold shares and the other major markets. For more information, go to AdenForecast
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DISCLAIMER: All of the information in this story is believed to be true, however errors are possible.
Past performance is no guarantee of future performance. All investments have risk.