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Gold nearing $1500,
silver at $37, oil well above $100! What a month… what a year!
We’re seeing record
highs in the gold price on a daily basis, silver soaring to 31 year highs day
after day, while crude oil takes off, reaching 2½ year highs.
LOTS OF FUEL IN THE RISE
Escalating violence in
Libya and spreading unrest in the Middle East is adding fuel to the already
strong bull markets (see Chart 1).
The threat of possible
supply disruptions is providing the real fire under oil, while demand
continues to grow. Gold and silver in turn are the safe havens as inflation
concerns and uncertainty prevail.
This turmoil will continue
to keep upward pressure on these markets, but there’s more to this bull
market... Rising consumer prices are becoming more evident, worldwide. That
is, we’re now seeing the effects from a cause that’s been in
place for quite a while.
FOOD & FIGHTS
As we’ve previously
mentioned, the cause is a sea of liquidity that has pushed all of the markets
higher.
This time around, soaring
agricultural prices have been the most dangerous. Global food prices rose to
a record. Rising food and oil are a deadly match
because higher oil prices push food prices even higher.
Just since last June, 44
million people were pushed into extreme poverty according to the World Bank.
This alone explains why governments are being toppled. With food costs taking
up a much larger portion of a families’ income in the emerging world,
it’s understandable that surging prices helped spur the outbreak in the
Middle East and North Africa. The United Nations says other countries at risk
of food riots are Bolivia and Mozambique.
Some say food is in a bubble, and possibly that’s true, but when you
consider climate change, political change and geopolitical tension, together
with price inflation, we don’t think a bubble is here… not yet.
VOLATILE TIMES AHEAD
We have an environment
today that ensures volatile times ahead… times when protecting
yourselves and your assets is most important.
One thing is
certain… Demand is growing… no question about it. As each month
passes, more people, sectors, and countries around the globe are buying and
holding gold and silver. Most important, central banks are still buying and
holding gold for the first time in 21 years. They made a structural shift in
policy last year when they become net buyers.
REFLECTIONS
Now that gold is within a
stone’s throw from the $1500 milestone, it’s time for some
reflection. With the gold price on a 10 year journey with the best still to
come, let’s take a walk through this bull market...
 
Gold was waking up from
the dead in 2001, but it started to rise quietly thereafter (see Chart 2A).
For four years its rise wasn’t taken seriously, even when silver and
copper joined the upmove in 2003. The main argument
was that it was dollar weakness, not a gold rise, that
was moving the market.
But this changed in 2005.
The first milestone occurred when gold broke clearly above $500. Gold soared
in its first major surge in the bull market. This was the rise when it broke
clearly away from the dollar and started soaring in all currencies.
This was a major feat!
Gold became the strongest currency, and it went on to break up to record
highs, reaching a peak in 2008 near $1000. Silver and copper also continued
soaring as the housing boom and world economic growth heated up.
2009 was the next
milestone when gold broke clearly above $1000. This started a stronger phase
of the bull market and since then, gold hasn’t looked back soaring to
its recent record closing high.
We’d say this rise has certainly lived up to a stronger phase, rising
66% since its April 2009 low, which is when the current rise first started.
The rule of thumb is, when gold’s rise reaches a new high for the bull
market, it’s a super strong market. And as we’ve just seen, when
it’s combined with the stronger phase of the bull market, it makes for
an explosive rise.
And explosive it has
been! With gold now approaching $1500, it’s near our first important
target level for this stronger phase. Gold will most likely resist near $1500
before moving clearly above this level into the next phase of the bull
market.
In the big picture and on
the upside, once $1500 is well surpassed, the $2000 area will then be the
next target. Will $5000 - $6000 or more end up being the final target? Time
will tell. It looks like this is a possibility but more important is that we
will stay with the trend for as long as it lasts.
As good as it’s
been, gold is far from being in a bubble. And you
must admit, it’s been the quietest bull market
in history. Just ask
the average person.
Mary Anne and
Pamela Aden
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