Gold: The Ultimate Safety Haven
By Mary Anne and Pamela Aden
The Aden Forecast
 With all of the daily drama and contagion fears out of Europe over the past month, it’s no wonder that gold has held up well.
The gold price has actually been telling us for the past few years that the world is a scary place, even more than it was during the 2008 meltdown.
The fact that gold has hardly declined in a normal downward correction (down only 16% so far) since then, while it keeps reaching record highs, reinforces that the world is tense and uncertain.
Plus, with gold in other currency terms also rising to record highs, it further reinforces this (see Chart 1).
 If you go back to the turn of the century, in 2000, you can clearly see the shift that then began to take place. The move from financial assets to hard tangible assets was underway. Chart 2 provides a great, easy-to-see, example of this.
It shows gold compared to the stock market, to the bond market, and compared to a strong currency.
In all three cases, the mega trend changed to favor gold in 2000. This became more evident in 2005 when gold really started taking off.
But even then, the clean rise in the gold price was camouflaged by the ongoing rises in the stock and currency markets.
Also, when the resource and housing markets began heating up in 2003, boosting the silver price, it took some of the spotlight away from gold as well.
This, and several other factors, are the main reasons why many people still aren’t invested in gold. It’s been gaining ground, but it took the 2008 financial crisis, and even more so, this year’s crisis, for many to notice that gold is a good place to park your money.
Note that gold reached a record high this year against the Swiss Franc; it reached its 1980 highs versus the bond market and it reached an over 20 year high compared to the Dow Jones Industrials.
You may remember that during the financial meltdown in 2008, all assets fell, including gold, and only the dollar and bonds held up. This is something that could happen again.
We might see an accident or a meltdown at any time, which would tie in with the much awaited full downward correction in gold (more on this later).
But most telling during the 2008 crisis was that gold fell much less than the other markets, and it ended the year on an up note. It fell almost 30% during the year but ended up about 5%. The fact that gold has been stronger than the precious metals this year may be suggesting the same.
Gold has been holding up better than the other metals and gold shares, which suggests that fear is causing physical gold to be in higher demand.
 And this strength is not over. In the October issue of The Aden Forecast we showed readers the current bull market in gold compared to other bubbles of the past. (The article also appeared in The Bull & Bear, Pg.1, Section B). Gold is hardly near those explosive high levels, and the next chart is yet another good example of this.
Chart 3 shows the gold price above, along with its leading indicator, below, since 1968. Note the sharp steady rise in gold since 2001. It’s been an amazing rise, up 660%.
But the type of volatility gold had in the 1970s has yet to be seen. The indicator (lower chart) helps to identify volatility, as well as high and low areas in the major trend. Note the clear difference between the volatility in the 1970s and the movements since 2001.
This indicator is saying that gold is near a normal high area within a major uptrend, but it has yet to experience any type of explosive action. It could be getting close though!
Silver in Similar Situation
 Chart 4 also shows the silver price since 1968. Here you can see the similarities of the dashed upchannel in the 1970s and today’s rise since 2003.
The volatility is similar, yet silver’s current bull market has been mild in comparison. Silver has risen 1000% since 2003, whereas in the 1970s it rose about 3600%. The bottom line is that the explosion is still to come.
Meanwhile, the central banks are taking historical actions to save the system. Bernanke continues to reaffirm that more monetary stimilus may be needed, while the European Central Bank (ECB) unexpectedly lowered interest rates. Lower rates are also positive for gold.
Meanwhile and in stark contrast, China and India continue buying up gold. Their 2010-2011 consumer demand is up 25% and 38%, respectively, compared to the low 7% in world gold sales.
Plus, China continues to expand its interest in having its citizens buy gold. In September, China joined other countries by having gold coins and bullion available in their ATMs.
Then, this past month, a bullion exchange in Hong Kong called the Chinese Gold and Silver Exchange Society started trading gold in Chinese yuan. It’s called the Renminbi Kilobar Gold and it’s being promoted as a double safe haven... by holding gold in a strong currency.
With the U.S. and Europe trying to save their systems, while China slowly boosts the yuan’s international appeal, you can see why gold is on the rise. It’s the ultimate currency when all seems so uncertain.
Fear and uncertainty have been the biggest emotions moving the markets this year.
The world is a volatile place, which is what the markets are reflecting. And this makes investing more difficult.
But if you use technical analysis to help stay on the right side of the trends, the volatility and noise tend to be more understandable.
Gold, for example, has been in a record strong intermediate rise for almost three years now. And it’s stayed clearly above its 65 week moving average during the bull market.
The only time gold has dipped below this average was at the extreme 2008 meltdown low. Otherwise, it has stayed consistently above this average since it first rose above it in 2001.
This moving average is currently at $1490, which is now higher than the lows reached last May-June. This is an impressive example of the power of this major trend.
If you would’ve simply used this average as your investing guide over the last 10 years, you would’ve stayed invested in gold for the lion’s share of the rise.
Gold’s intermediate moves have basically been biased towards the upside for the past several years. For this reason, we’ve been advising to buy gradually over the past month to take advantage of any weakness.
Gold has been due for a normal downward correction, but with the world as it is today, the downside has been limited to moderate declines, like the one we had in September, losing only 16%.
 With gold rebounding and approaching the September highs, the question now is, does the correction still have more downside, or is another leg up in the bull market ready to develop?
It certainly feels like 2008 all over again, but our best bet is to stay onboard and watch the numbers. The trend is your friend and for now, the gold trend is very strong by staying above $1700.
But the key level for this decline is the September 26 low at $1594. If this level is broken, then a sharper decline could take gold to the $1490 – $1500 level. A decline to this level would be more in line with a normal decline, down about 20%.
On the upside, if gold closes and stays above the $1903 level, then a leg up in the bull market could take gold to the $2000 to $2200 level as the next target.
We should be prepared for anything short term, which is why the focus has to be on the major trend and being well positioned within this great bull market.
Silver is looking good, even though its recent rise has been pale next to gold’s. Most impressive is how well it’s held above its major trend, now at $32 (see Chart 5A). Plus, its leading indicator (B) is bouncing up from a clear oversold level, which is positive.
All in all, silver looks good and we continue to recommend buying and keeping your silver positions. The silver price flipflops from being a precious metal to a base metal. It’s being pulled up by gold, but the drag’s been coming from the resource sector as the global economy slows.
We don’t think it’s a coincidence that the markets exploded the day following the end of QE2 on June 30. There had been telltale signs of uneasiness since April and May, but the Summer months were the ones filled with volatility.
Gold Shares: Holding firm
Gold shares bounced up nicely in recent weeks, especially the senior shares. This makes sense because with uncertainty at a high, investors want more safety and they’ll get that with the senior mines.
The HUI gold share index has been sitting on its major support for several months. Its strong trend went sideways this year, but the major trend is still up, as it’s holding above its 65 week moving average.
The leading indicator also has room to rise further. Gold shares have been in a tug of war between the gold price and the stock market. With both bouncing up this past month, gold shares received a boost from both markets.
For now, gold has been stronger than gold shares, but our shares have been doing well. Our silver share has done well too.
Editor’s Note: Mary Anne and Pamela Aden are co-editors of the Aden Forecast, now in its 30th year, P.O. Box 790260, St. Louis, MO 63179, 1 year, 12 issues, $250. Includes weekly online updates. The Aden Forecast specializes in all major markets with special emphasis on the precious metals, currencies, and natural resource markets. www.adenforecast.com.
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