GOLD AT 6½ YEAR HIGH

Mary Anne & Pamela Aden

Gold is soaring. The stronger phase of the bull market began in December and it's certainly playing the part well. Gold has risen 19% since Thanksgiving, it reached a 6½ year high and the first leg of the stronger phase is alive and well. The falling Dollar and Bush's war threats are pushing gold up and it's becoming a safe haven during uncertain times.

Gold is flexing its muscle for the first time since 1980. It broke clearly above a 23 year downtrend and it rose above its prior 1999 peak, which is something gold hasn't done since the 1980 peak. Gold is poised to rise in a sustained rise this year and next, and possibly longer.

Gold is the ultimate currency. As we've often said, for a true bull market in gold to occur it must rise in all currencies, which it's doing as you can see on Chart 1. This means even though the currencies have been producing impressive gains while the Dollar falls, gold has been even stronger. It's interesting that today no country really wants a strong currency because it hurts their exports. Competition is stiff especially because China continues to export cheaper goods. This is all good for gold even without war, because ultimately there will be competitive devaluations against gold.

Gold rises during uncertainty and that's what we currently have. It doesn't matter if it's an inflationary or deflationary environment. Gold is seeing the Dollar buckle down because of a slowing economy, soaring deficits, slumping stocks and interest rates at 41 year lows. And it sees a huge expense if we go to war and that a war would hurt the economy even more. Gold in this environment represents ultimate safety.

Keep in mind, gold is still in the early part of the bull market. The public isn't in yet and many are skeptical. That's good news because it reinforces that this bull market has a lot further to run.

It's a time to buy and hold for the long run.

Once a bull market really gets underway, all the precious metals will eventually rise together. Platinum actually led gold because it started to rise in 1999 and it's stronger. But this month it joined gold in a stronger phase of the bull market as it soared above its January 2001 high, reaching a 16½ year high. This is a big step for the bull market in gold.

In the past it has taken up to several years for all the precious metals to kick into the major rise. Silver has been slow moving but its trend is up which is most important. Once it eventually breaks above $5.10, its strength should improve.

Palladium has been the wild one, as it rose like a tech stock in 1997-2000 during the Russian crisis and it's been falling like a tech stock since. It has strong support at 200 and its indicator is at an extreme low area, which means the lows for palladium may be nearing.

Gold shares have been lagging behind gold but that's okay. Gold shares are clearly bullish, they move with gold and they'll eventually catch up.

Gold and gold shares often take turns outperforming during a bull market and that's what's happening now. Gold shares have been stronger than gold over the past two years, they got ahead of themselves and it's gold's turn to shine. Last year, for example, gold shares rose nearly double the rise in gold, and gold shares will likely continue to outperform gold during this bull market. For now, gold has been showing greater strength but it's nothing to worry about. It's more important to buy on weakness.

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