Gold & Silver:
25 and 18 Year Highs, and more...
By Mary Anne
and Pamela Aden
The Aden Forecast
Gold was a winner in 2005, rising sharply to 25 year highs in its ongoing bull market. But the most significant change occurred in September when gold broke away from the dollar as it soared to multi-year highs in all currencies. When gold rises on its own against all currencies, you know the bull market is real.
Basically, this gold's role in the international market. Gold is true wealth. Historically, it's the oldest and most stable currency and it rises when people start losing faith in paper currencies. In the U.S., Nixon closed the gold window in 1971. Since the, the Federal Reserve has printed money whenever it wanted to. Central bankers and politicians don't want a gold backed currency because it would force them to be disciplined and they couldn't then print money out of thin air.
Meanwhile, investors are now starting to take gold's bull market seriously. It takes time to change collective thinking, especially since gold ended in 2001. But gold is currently showing incredible strength and it's hard not to notice.
The fact that palladium joined the bull market at the same time gold broke away from the dollar was another reinforcement of a strong bull market. When all the precious metals rise together, it's also significant.
Actually, the background couldn't be better because this is a demand based commodity move in a changing world that's drowning in liquidity.
 Just look how much the tangible world has risen this year... Copper is up 43%, diamonds about 30%, art is up 40%, uranium 74%, natural gas 83%, aluminum 28%, lead 23%, zinc 60% and oil is up 34%. In fact, mania characteristics are developing (see Chart 1 and the striking similarity between the oil and gas stock index compared to Nasdaq in the 1990s).
This tangible era has a lot further to go in the years ahead. And if the dollar begins another leg down in the bear market, these trends could explode.
The commodity demand is being fueled by the growing economies in China, Asia and India where gold demand is growing, as well as in the Middle East. Funds, investors and central banks are also buying gold. As we mentioned last month, Russia announced they plan to double their gold reserves, while South Africa and Argentina said they may add to their gold reserves too.
Most significant, China recently suggested they'll be buying gold. Their goal in 2006 is to improve the management of their foreign exchange reserves and to explore more effective ways to utilize reserve assets. This is a bad sign for the dollar because China, like Russia and many Asian countries, hold small amounts of gold and massive amounts of dollars. So if these countries buy even small amounts of gold, it could soar and the dollar would be vulnerable. And if other countries stop selling gold, the move could be explosive.
The tension in the Middle East is another sensitive area for gold and oil, especially with Israeli Prime Minister Sharon's delicate health situation. Considering the escalation of the Iraq war, together with the Iran-Israeli aggravations, the Middle East is a hotspot that could intensify and affect the markets.
 These factors are keeping upward pressure on gold. Gold is also catching up to the rising money supply of the last 20 years. Our friend, John Mauldin, indicated that gold would have to rise to about $4,000 if it were to properly back all the paper that's been created in recent years. Just for gold to reach the same dollar value equivalent of the 1980 peak at $850, it would mean a rise to $2,000.
We've been taking this bull market one step at a time and as we showed you last month, the steps have clearly been bullish. Gold has stayed consistently above it key 65-week moving average sine 2001. It entered its fourth step when it jumped above $500, and the $554 level is now important because it's the half way mark between the 1980 peak and the 1999 low. This is the next resistance but once it's broken, $850 is gold's next significant target.
Chart 2 shows gold's big picture since 1967 and the mega uptrend and channel it's formed since then. With gold now above $500, you can see that if it rises to $850, the 1980 high, it'll only be reaching the mid-channel (broken) line. This means once gold reaches a record high above $850, it'll be entering the strong phase of the mega upchannel. This is when gold could explode to those high levels near the top of the channel.
 This type of move could still be years away once this mega bull market runs its course. But it's exciting, the potential is there and we want you all to be on board for this grand move.
Gold's Best & Longest C Rise
Meanwhile, gold's current surging rise has been the longest in decades, according to our timing indicator on Chart 3B.
The latest jump to the $550 area caused the indicator to reach and extreme high. This rise broke barriers and surprised many by rising higher than even the most optimistic forecasts, including our own.
This indicator tells us a lot about the intermediate rises in gold, as well as the health of the bull market. The C rises are the best rise in a bull market when gold tends to reach new highs for the move. D declines are the worst decline, which makes sense since it follows the best rise. But in a bull market the D decline low should be higher than the prior B for the bull market to stay on track. The A rises and B declines tend to be moderate and essentially a consolidation time. But if gold reaches a new high during an A rise, then the bull market is super strong.
The current C rise began in July and gold's risen 29% in 25 weeks... by far the longest and most spectacular C rise. This clearly shows the bull market is heating up. For all practical purposes, the C rise is now near maturity but it won't be over until gold closes and stays below $520.
Once that happens, a D decline will begin. In a worst case, gold could then fall to possibly its moving average at $447. This is the major support area. But if the dollar begins a renewed leg down during the D decline, we could see gold stay firm. If gold stays above $495 during weakness, it will reaffirm its new super strength.
Our strategy has always been to buy and hold gold for the major move. This has proven over time to work for an investor rather than selling at intermediate peaks and buying back at intermediate lows. We'll always try to buy new positions at the low areas. And while selling at these tops can be gratifying at times, it also presents the risk of being left out of a major rise. Sometimes intermediate highs can go much higher than imagined while a market stays overbought and the current C rise was an example of this.
We know many of you want to know when to sell at intermediate highs and we'll continue to identify them but our basic strategy is buy, hold and ride through weakness.
 Silver is strong, rising 36% in 2005 and it's better than gold. Silver will continue to do well in the current environment as the fundamentals favor a higher price.
Chart 4 shows silver's potential. It's currently at an 18 year high and it's fast approaching its 1987 peak near $9.80. Note that this level is near the mid-channel line of the growing mega upchannel since the 1990s. Once this level is clearly surpassed, silver will be entering the upper side of the channel where it could soar. The next target would then be the 1983 high near $14.50, which is also near the top of the channel.
These are the stepping stones for silver, but first we'll likely see silver take a breather because the super intermediate rise since September is overbought, as you can see on Charts 5A and B. Silver will remain very strong above $8.80, but a close below this level means it could decline to $8.20 and it would still be strong. Major support is now at $7.35 and in a worst case decline, silver could test this level but the major trend would remain up.
 Silver shares, like CDE and SIL, haven't performed as well as silver itself. This happens at times, which is why it's important to stay diversified in both the metals and shares.
CEF is a good way to buy silver because they hold 50 ounces of silver for every one ounce of gold. This is a good proxy for a silver ETF.
Gold Shares:
Soaring, near 1996 peak
Gold shares continued to soar, which is yet another strong bullish sign backing up the major move in gold. They've been stronger than gold since May and this great strength is coinciding with the bullish characteristics gold shares have shown over the past four years.
Chart 6A shows the XAU gold share index has been super strong during every other C rise. The last time gold shares showed similar strength was during the rise leading up to the 2004 peak. With XAU now approaching the top of the upchannel, it's near our target area of 150 for this rise and gold share growth is clearly on target.
But the rise isn't over yet and the leading long-term indicator still has room to rise further before it reaches a high area, like it did during the 2002 and 2004 strong C rises (see Chart 6C). This means gold shares could rise further even though the medium-term indicator (B) is overbought. Note, this indicator took its time forming a top during the 2002 and 2004 run up and this time it could be similar.
 XAU will now remain super strong above 130 but even if it declines to 118, the rise since May will remain solid. Major support is at 102.
All of our recommended gold shares are at new highs. They've done very well but they're now clearly overbought. You may now be thinking, since we have good profits in gold shares and considering an intermediate peak may be nearing, together with a possible uneventful gold share rise for the next two years or so, should we sell?
The alternating strong-weak C rise has worked so far but that could change with the bull market heating up. If traders want to take some gold share profits that's up to you, but don't sell them all and don't sell your gold. Always keep a good position in the market in case the bull market takes off. Overall, we think it's best to keep more in physical gold and silver bars or coins, or GLD, IAU and CEF.
Copper is the world's economic barometer because it's used in so many areas of the economy. The fact it continues to defy gravity shows great world demand.
Chart 7A shows copper's spectacular rise since 2001. The leading (medium-term) indicator is now at an intermediate high area, which means copper's rise is due for a breather decline (see Chart 7B). Copper could decline to $1.99 and wring out some excess, but it would still be very strong in a solid rise. Major support is at $1.63, its 65-week moving average.
Phelps Dodge (PD) is our recommended copper stock. It reached a new high and it's very strong but it's overbought. Our resource shares, BHP and RTP are also at new highs and the energy sector also looks good.
Uranium continues to reach new highs too and our recommended uranium stock, Cameco (CCJ) is also at the highs.
Platinum is again above $1,000 while palladium remains strong. Both look good even if they decline to the major supports at $894 and $206, respectively. PAL is a good share for the palladium move.
Crude Oil: Rising in bull market
 Oil is on the rise as well within it's bull market. Oil is solid above $60.40 and it has room to rise further to possibly test the August highs near $70, as the leading medium-term indicator rise from an oversold area.
Oil's major trend is up above $55.30 and our recommended energy shares are at or near the highs. Cheap oil and natural gas are a thing of the past. The supply-demand situation, as well as turmoil in the Middle East will eventually take oil to new highs.
Editor's Note: Mary Anne Aden and Pamela Aden are Co-editors, of The Aden Forecast, now in its 25rd year of publication, P.O. Box 790260, St. Louis, MO 63179, 1 year, 12 issues, $195. They are also Co-Directors, Aden Research, San Jose, Costa Rica. Visit the web site at www.adenforecast.com.
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