Gold Has Further to Run
Source: Mary Anne & Pamela Aden, Aden Forecast (10/26/10)
"Gold is in its longest winning streak since the 1920s!"
We hear that gold is in a bubble, it can't rise much further and so on. Many wonder, why it's even risen so much. For that, you again have to look at history from a global perspective and it'll provide the answer.
Looking Back. . .
We've often pointed out that gold is money. It has been for thousands of years. Paper money is not really money and there isn't one paper currency that has survived over time. Gold, on the other hand, has. It can't be created at will, it's durable and it's always maintained its purchasing power.
In 1971, when foreign nations (particularly France) demanded that the U.S. settle its deficits with gold, Nixon, who was worried about the disappearing gold reserves, said "no." In doing so, he shut the gold window. So the time-honored link between the U.S. dollar and gold was broken, the world went off the gold standard and the U.S. dollar became the world's reserve currency. The U.S. then created a false prosperity via inflation, and ever-larger quantities of money and debt. But this was a fantasy that's now meeting head on with reality.
Abused Dollar Is the Culprit
Because the U.S. is now going overboard with massive deficit spending and out-of-control debts, the world is starting to want real money—gold. And that's why the dollar is falling and gold is soaring.
Naturally, there will be corrections along the way. No market goes straight up or straight down, and the hardest part is to stay with it. We've been consistently recommending gold since 2002 and, yes, there have been ups and downs.
In fact, gold's exceptional rise has now reached our temporary target level. It's been a super rise—up 55% since April 2009; or you could say, gold has soared 17% in recent weeks alone! By any standard, the surge is due for a rest, which is likely now beginning, and this could last for a few months.
Gold, however, is still far from the mania, bubble stage. Average investors are just starting to appreciate the rise in gold. They know things aren't right and they are learning that gold is a safe haven. They see the dollar falling, the economy dragging with debt and the Fed trying to keep it together. The public is concerned, but they're not yet buying gold. When they do, gold will surge to even far higher levels.
Mega Bull Market
It's important to keep in mind that great bull markets in gold occur one or two times in a lifetime. The last one ended in 1980. It took 20 years before the next (and current) bull market to begin.
It began at a moment when most thought gold was dead and buried. Central banks couldn't sell their gold fast enough. The Bank of England sold its at the major low in 2001. Meanwhile, gold producers had been hedging their production in order to stay afloat. This despair marked the low.
Now 10 years later, we've seen the gold price produce consecutive annual gains. And with gold up more than 20% this year, 2010 will mark 10 full years of gains. This is the longest winning streak since the 1920s!
Times have changed. But it took the financial crisis and the ongoing aftermath to change the way people view gold. Confidence is growing, and the change in the central banks' actions and attitude toward gold was key in giving a green light to investors.
Central banks stopped selling gold and they've become net buyers this year for the first time in two decades. They're expected to buy 15 metric tons of gold this year, which is a major turnaround. Gold is becoming an important reservable asset and again—this bull market has further to run. Use weakness in the weeks ahead as an opportunity to buy at a better price, and then plan to hold on for the long haul.
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.