Gold is on the rise. Investors are excited, especially after last month's volatility, which proved to be nerve wracking for many gold investors. This alone reinforces why it's important to focus on the major trend.
Chart 1 shows gold's mega uptrend and as you can see, the volatility over the past year doesn't look like much. On the contrary, this chart illustrates gold's strength as it sits near the high side of the rise that started in 2001. This is the most important picture to keep in mind when investing in gold. The bull market since 2001 is clearly underway.
If this mega uptrend and channel stays in force, and we believe that it will for the reasons discussed in our article of March 9, 2007, then this bull market rise is going to make the 1970s spectacular rise look small in comparison. It will take time, but it's powerful because it's more of a global market today compared to the 1970s.
We can't stress enough how important the major trends are. Most assets have been up since 2003, but it's also important to see where the real strength lies. And it lies in gold because gold is better than stocks, bonds and the currencies.
GOLD: BEST PROFIT POTENTIAL
Note that the mega trend changed in 2002 when the ratio between gold and the Dow Industrials changed to favor gold (see Chart 2). These changes do not happen often but when they do, then the pendulum has swung and it still has a long way to go. This means that gold will continue to outperform stocks for years to come, like it's done in recent years. So this is another key mega chart to keep in mind when investing.
When we say gold, we mean the gold universe and the best investments within this ample sector. That includes silver, the other precious metals, natural resources and energy.
Other positive signs that reinforce a powerful bull market are when gold is strong in all currencies, and when all of the precious metals are rising in major uptrends. This is happening today.
Gold is strong in all currencies and so is silver (see Chart 3, which shows silver's surge against the euro since 2003). And all of the precious metals are on the rise.
SUPPLY NOT KEEPING UP WITH DEMAND
We have often discussed the reasons why gold will stay on track to rise in the years, and more likely decades ahead. Aside from growing global monetary inflation, price inflation, out of sight deficits and debt, a weak U.S. dollar and the war, there's also a growing shortage. In fact, there's currently a shortage in many commodities.
Gold production is down around the world. South African gold production, for instance, fell to its lowest level in 84 years last year. From the U.S., to Australia, Peru, Russia to Canada, production was also down. China was about the only country to increase its production.
And this is happening while demand is growing worldwide. The growth in China's demand for commodities is unprecedented, which will keep prices high. Plus, most investors don't realize that gold's been rising for six years, gaining about 200%, and once this becomes more obvious, it'll unleash a flood of new demand. Central banks are now also selling less gold.
HEADED HIGHER
An intermediate rise we call C started on January 5, which means it's been underway for about three months.
C rises tend to be the best, strongest rise in a bull market when gold reaches new bull market highs. Gold is currently at a nine month high and it has a good chance of testing and surpassing the May highs. For now, if gold can rise and stay clearly above $690, then $722 will become an easy target. Gold would be impressive above this level as it would reconfirm that a very strong bull market is underway.
