Well it finally happened.
Gold broke clearly through the $330 level last week and a
stronger phase of the bull market is now underway. In fact,
this is the most bullish signal that’s happened since 1980
and it’s a very big deal.
If you’ve read our previous
articles, you know we’ve been watching the $330 level closely.
Gold tried to break above that strong resistance in June and
again in September, but the third try proved to be the charm
and gold is now on its way.
The $330 level was also gold’s
prior peak in 1999. Interestingly, the only strong rises in
gold’s big picture since 1980 were in 1985-87 and 1993-96.
In both cases, however, gold was unable to rise above its
prior peak… that is, until last week. This tell us we’re now
in a different ballgame. Not only is this bull market for
real but it’s exerting the type of underlying strength not
seen since the 1970s.
We’ve received many e-mails
from readers warning us about the large interest groups trying
to keep a lid on the gold price. Be it the commercials who
are short, or the gold mining companies who are hedged, or
the Fed… and we understand. But we also know that the major
trend is the most powerful and gold’s major trend is up. Plus,
now that gold’s broken above $330, it’ll begin to attract
a lot more attention, pulling new buyers into the market,
which will propel the price even higher.
INVESTING WITH THE TIMES
Overall as the year draws
to a close, it’s been a very interesting one. International
events took center stage as terrorism and Iraq maintained
the headlines. The world economies struggled along and the
markets reacted accordingly.
Mostly, the markets continued
on their courses set last year or the year before. Stocks
fell further with Nasdaq down 28% for the year to date. Gold’s
been on an upward path all year and it’s currently at a five
year high. Likewise for the currency markets, as the U.S.
Dollar continued on its downward path. Oil rose sharply, in
large part because of war threats, and the commodity markets
did too. Gold shares had a great first half, then consolidated
as the year progressed, but they’re up 44% so far this year
and on the rise again.
We believe these major trends
will continue as we move into the new year. Remember, mega
trend changes have taken place in stocks and gold over the
past year, which strongly suggest gold will move higher and
stocks will remain bearish (see Chart 1). That in turn
means the Dollar will stay under downward pressure, since
the Dollar and gold move opposite, and the currencies will
rise.
As for oil, much will depend
on the war on terrorism and Iraq. Interestingly, the major
market trends are coinciding with a war outcome, but we don’t
need or want a war for these trends to continue. If it happens,
however, it would be bullish for gold and bearish for stocks,
which would intensify the major trends already in place. Geopolitical
risk remains high, which makes crisis investing an important
strategy for now.
More certain, the Fed’s priorities
have changed. This month they came out strongly against deflation.
In other words, inflation concerns have taken a back seat.
And in its battle to fight deflation, the Fed has been, and
will continue to take inflationary actions to turn the deflationary
tendencies around. If it eventually results in inflation,
so be it, but the Fed’s actions are showing it considers deflation
the immediate and greater danger and that’s where its focus
is, which is good for gold as well.
STOCKS & GOLD: Changing
places
Keep in mind, the stock market
is still forming a massive top. All the market’s done so far
is erase the extreme excesses of the grand bull market. It
reached its 1997 lows in October, which means that most people
who’ve bought stocks over the last five years have losses.
This certainly isn’t as bad as the 1929-32 losses when 15
years of stock gains were erased, and considering the largest
financial bubble in history has burst.
It seems unlikely that the
January level near 10000 will be reached this month and if
it isn’t, it means 2002 will mark the third consecutive down
year in the stock market for the first time since the 1939-41
time period. This alone shows we’re not in normal times.
Meanwhile, gold has been
building a solid bull market base for the last several years
and we don’t think it’s a coincidence that it’s coinciding
with the biggest financial bubble and bust in U.S. history.
We’ve been taking this bull
market one step at a time. And so far the steps are well in
place for a sustained rise in gold, so keep an eye on $330
as gold is very strong above it and the bull market is heating
up.
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