Volatile market has investors spooked

For now, based on our analysis, gold’s bull market remains in force. That’s the bottom line. Even though there have been some wild swings, the major trend is still up and as long as that’s the case, we recommend holding your positions.

To briefly update you on what we’ve even watching, following are our last two alerts…

August 18, 2008

After reviewing all of the technical, economic, and fundamental factors over the weekend, these are our latest thoughts on what's currently happening.

On Friday, gold broke clearly below its 65-week moving average, which is at $819. As you know, this average has been very reliable, identifying the major gold trends since the late 60s. If gold now stays below $819, it will signal that the major trend has turned down and gold is going lower.

But equally important, gold is extremely oversold. This means it's fallen too far, too fast and it's poised to rise in the weeks and months ahead. The same is true of silver, and gold and silver shares. Gold's D decline is also near maturity based on timing and gold's percentage decline. In other words, gold is at an extreme and the downside is limited. That being the case, we recommend the following.

Stay put for the time being and keep your metals-related positions. It's still too soon to know if this is just a temporary, extreme break, which seems the most likely, or if this marks the start of a new bear market decline. We need to see more.

Since gold is so oversold, the extent of its rebound rise is now going to be very important. If gold, for instance, rises back above $819 during the rebound, then the break below the moving average would've been a temporary aberration rather than a major trend change. In that case, we'll continue holding our metals-related investments.

On the other hand, if gold stays below $819 during the rebound rise, it'll mean that an important trend change is taking place and we'll either sell or lighten up on our holdings at a better price during the rebound. We'll then plan to buy gold again once it turns technically bullish.

As we've always said, we'll let the markets tell us what to do. And for now, they're telling us to sit tight. It's still too soon to act and today's $15 upmove may well be the start of the rebound we're referring to.

An extreme situation

August 20, 2008

Even though it's still early, we're starting to see some signs that the worst is probably over, or nearly over. For example, gold, silver, oil, the base metals, and some of the soft commodities and currencies are either stabilizing or beginning to bottom at extreme lows.

The same is true of some of the gold and silver shares, and natural resource and energy stocks. They are all bottoming at extremely oversold levels (see Agnico Eagle (TSX T.AEM, Stock Forum) as an example on Chart 1). Several currencies are similar. At the same time, the U.S. dollar's short-term leading indicator is extremely overbought, the most in 16 years. These are further signs that these markets are now either poised to rise, or they're already starting to move up in the rebound rise we've been referring to. Keep your positions.

The gold price, for instance, is bouncing up from its extreme low posted on Friday. And while it's still below its 65-week moving average, now at $820, gold has reached an extreme D low in both time and price. Gold's fallen 21.5% from its March record high to last Friday's low, and it's taken 22 weeks to do this. This is close to the worst decline in gold's seven-year bull market, which happened in 2006 when gold fell 22% from its May high (see Chart 2). Gold then declined for 23 weeks and it formed a double D bottom. For now, if December gold closes back above $820, it'll reinforce that the fall was an aberration and the bull market is fine.

As we write, gold is indeed back above $820, signaling that the major bull market that started seven years ago remains intact. That’s the big picture and it’s most important.

ABOUT THE AUTHOR

Mary Anne & Pamela Aden

Mary Anne & Pamela Aden are well known analysts and editors of The Aden Forecast, a market newsletter providing specific forecasts and recommendations on gold, stocks, interest rates and the other major markets. For more information, go to www.adenforecast.com.

Stockhouse Conflict and Disclosure Policy:

Stockhouse publishing Ltd., owners and operators of Stockhouse.com, has established the following rules to ensure that there is no appearance of impropriety on the part of any Stockhouse Editorial writers ("Writers"). The content of Stockhouse Editorial articles (the "Articles") are the opinion of the Writer and any reliance on the content of these articles is at your sole risk. Our Writers are not registered investment advisors. You should not make any kind of investment decision in relation to Articles or stocks discussed in them without obtaining advice from a registered investment advisor.

Facts relied upon by our Writers are generally provided by the subject companies or gathered by our Writers from other public and/or private sources. These facts may be in error and if so, the opinions of our Writers may be materially different.

Writers may own, buy, or sell shares in public companies mentioned in their Articles, but in the Article they must prominently state their ownership position. Thus, a conflict may exist. Writers are not permitted to write Articles that attempt to benefit persons connected to the Writer, such as family or friends, except where disclosure is made in the same way as if the Writer him/herself owns stock.

Writers cannot solicit, accept, or agree to receive anything of value given or paid with the intent of influencing their Articles.

Stockhouse notifies each Writer about these rules, and we rely on the integrity of our Writers to ensure that our rules are followed.