Break Out ! in Precious Metals - Interesting News - McGill Live International Broadcast

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Break Out !

December 18, 2002
Mary Anne & Pamela Aden

Well it finally happened. Gold broke clearly through the $330 level last week and a stronger phase of the bull market is now underway. In fact, this is the most bullish signal that's happened since 1980 and it's a very big deal.

If you've read our previous articles, you know we've been watching the $330 level closely. Gold tried to break above that strong resistance in June and again in September, but the third try proved to be the charm and gold is now on its way.

The $330 level was also gold's prior peak in 1999. Interestingly, the only strong rises in gold's big picture since 1980 were in 1985-87 and 1993-96. In both cases, however, gold was unable to rise above its prior peakÖ that is, until last week. This tell us we're now in a different ballgame. Not only is this bull market for real but it's exerting the type of underlying strength not seen since the 1970s.

We've received many e-mails from readers warning us about the large interest groups trying to keep a lid on the gold price. Be it the commercials who are short, or the gold mining companies who are hedged, or the FedÖ and we understand. But we also know that the major trend is the most powerful and gold's major trend is up. Plus, now that gold's broken above $330, it'll begin to attract a lot more attention, pulling new buyers into the market, which will propel the price even higher.

INVESTING WITH THE TIMES

Overall as the year draws to a close, it's been a very interesting one. International events took center stage as terrorism and Iraq maintained the headlines. The world economies struggled along and the markets reacted accordingly.

Mostly, the markets continued on their courses set last year or the year before. Stocks fell further with NASDAQ down 28% for the year to date. Gold's been on an upward path all year and it's currently at a five year high. Likewise for the currency markets, as the U.S. Dollar continued on its downward path. Oil rose sharply, in large part because of war threats, and the commodity markets did too. Gold shares had a great first half, then consolidated as the year progressed, but they're up 44% so far this year and on the rise again.

We believe these major trends will continue as we move into the new year. Remember, mega trend changes have taken place in stocks and gold over the past year, which strongly suggest gold will move higher and stocks will remain bearish (see Chart). That in turn means the Dollar will stay under downward pressure, since the Dollar and gold move opposite, and the currencies will rise.

As for oil, much will depend on the war on terrorism and Iraq. Interestingly, the major market trends are coinciding with a war outcome, but we don't need or want a war for these trends to continue. If it happens, however, it would be bullish for gold and bearish for stocks, which would intensify the major trends already in place. Geopolitical risk remains high, which makes crisis investing an important strategy for now.

More certain, the Fed's priorities have changed. This month they came out strongly against deflation. In other words, inflation concerns have taken a back seat. And in its battle to fight deflation, the Fed has been, and will continue to take inflationary actions to turn the deflationary tendencies around. If it eventually results in inflation, so be it, but the Fed's actions are showing it considers deflation the immediate and greater danger and that's where its focus is, which is good for gold as well.

STOCKS & GOLD: Changing places

Keep in mind, the stock market is still forming a massive top. All the market's done so far is erase the extreme excesses of the grand bull market. It reached its 1997 lows in October, which means that most people who've bought stocks over the last five years have losses. This certainly isn't as bad as the 1929-32 losses when 15 years of stock gains were erased, and considering the largest financial bubble in history has burst.

It seems unlikely that the January level near 10000 will be reached this month and if it isn't, it means 2002 will mark the third consecutive down year in the stock market for the first time since the 1939-41 time period. This alone shows we're not in normal times.

Meanwhile, gold has been building a solid bull market base for the last several years and we don't think it's a coincidence that it's coinciding with the biggest financial bubble and bust in U.S. history.

We've been taking this bull market one step at a time. And so far the steps are well in place for a sustained rise in gold, so keep an eye on $330 as gold is very strong above it and the bull market is heating up.

By Mary Anne and Pamela Aden
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. Click here to visit their website at www.adenforecast.com

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