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Gold just doesn’t let up in its ongoing super
rise as record highs have been commonplace this past month. It’s
already soared over 33% this year, which makes it almost the best year so far
in the bull market!
Gold shares and silver are following, and many gold
shares have also reached new highs.
Uncertainty and fear kicked up several notches this
month, which caused a run to safety, and gold and bonds were the
favorites. It’s interesting that we’re seeing both
traditional inflation and a deflation indicator rising together as safe
havens.
GOLD DEMAND STRONG
Gold continues to be bought by governments.
Venezuela and Bolivia were upfront this month. Hugo Chavez is taking
his gold out of London and the U.S. and sending it home, as he nationalizes
mines.
Mexico, Russia, Thailand and South Korea have been major buyers this year.
The World Gold Council repeated that strength in the
market remains concentrated in India and China. And China’s
investors have not lost their enthusiasm for gold, in spite of record high
prices.
So far in 2011, governments have almost tripled
their net gold purchases over 2010. And considering that 2010 was the
first year in 23 years that central bankers became net buyers of gold, you
can see this growing trend has much further to go.
The largest yearly gain for gold during the last
decade was in 2007 when gold rose 33.63%. Now, 2011 is getting close to
that level. If the $1900 level is clearly
surpassed, then 2011 will become the best yearly gain yet in the almost
11 year old bull market.
Some investors sold their gold last year as they
felt the bull market was over, or nearly over.
The rise this year has been frustrating for them, which has added to the
bubble theory.
But when you just consider the downgrade of U.S.
debt, the jobs problem, the housing situation, the European bank concerns and
their debt crisis, the negative outlook for the global economy, not to
mention that the Fed will likely seek new measures to help the economy, we
just don’t see gold coming down any time soon, other than having a
normal downward correction.
For now, we’ll take this bull market one step
at a time, just like we’ve been doing since 2002 when we first turned
bullish and bought gold. But the bull market, under any normal
circumstances, is due for some down time. Nevertheless, we’ll let
the market tell us what to do.
$2000 OR BUST?
Gold moved into a stronger phase of the bull market
in September 2009 and it hasn’t looked back since then. It broke
clearly above $1000, and here we are approaching $2000, which is another
doubling of the price in two years.
This has been an amazing rise we call a C rise, and
while we could still see a jump up to $2000, it feels like a downward
correction is upcoming. The volatility we’ve seen this month,
with almost $200 fluctuations, is probably a sign of an intermediate top.
And now with the dollar starting to rise, while the
other currencies decline, this too is signaling that gold is poised for some
sort of correction. Its leading indicators on Charts 1B and C
are near overbought, which also reinforces this.
WHEN TO BUY, HOW TO BUY
We receive letters asking if it’s too late to
buy gold. We’ve taken the stance to buy gradually over the months
to average in at a fair price. We’ve seen people wait for a
correction only to have the price get away from them.
As we write, it’s starting to feel like the
Summer of 2008 all over again. At that time, gold fell with all of the
markets, and it could happen again. But when a correction comes,
don’t think much about it and buy with both hands. Meanwhile, buy
gradually and on any weakness.
Keep in mind, gold will remain strong even if it
falls to the $1650 level. But if it closes below this level, a steeper
decline could take it to $1420, its major support. Currently,
volatility reigns and overshoots could also easily happen.
SILVER AND GOLD SHARES
Since silver and gold shares have not been on a tear
like gold has, they’re not overbought. They were also pressured by the
falling stock market and concerns of the slowing global economy.
But Charts 2 and 3 show
they have room to rise further. First, note that silver is
holding firmly near the higher side while its intermediate leading indicator
bounces up from the lows. This means that silver has room to rise
further. It’s strong above $38.50 and the major trend is up above
$30.50.
As for gold shares, the XAU index is near the highs
as it follows the gold price. Gold shares also have room to rise
further since the leading indicator is still coming up from a low area.
As for silver shares, they’re not bouncing up
as much as gold shares, but we think it’s just a matter of time until
they follow.
Mary Anne and
Pamela Aden
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