But gold was essentially moving from weak hands into strong ones. The decline since February was what we call a steeper D decline. It would've been nice to see a milder correction but, more important, it was a normal bull market downward correction, not a bear market decline.

Gold's decline was due to end in April based on past consistencies and it ended right on schedule. Gold shares led the way as they often do and for now, gold remains bullish and it's headed higher.

There are many theories about gold being manipulated and it does seem likely since downward pressure on gold and gold shares seems to kick in at key levels. And considering the small size of the gold share market at around $90 billion, it's less than many individual Dow stocks. So it wouldn't take much to scare investors out of gold and it could work temporarily.

But we know that any squelched bull market will eventually go against the manipulators because the primary trend is more powerful. Once market forces take the bull by the horns there's no stopping it and we think that will happen this time around as well.

REASONS WHY GOLD IS BULLISH

• The U.S. dollar is the key. It's gold's barometer, it's been bearish for over two years and the next leg down in the dollar will give gold a big boost. Why? Because gold is the ultimate currency and it moves opposite to the dollar. There will come a point when large interest groups will want to protect themselves from a falling dollar and they'll buy gold.
  
  The only other alternative to a falling dollar is the euro and yen. They too will continue to gain on dollar weakness but gold has been rising more than these currencies, signaling the gold move is solid.
  
  The world sees this and it also sees the unified euro causing stiff competition to the dollar. So it's not surprising that central banks like in China and Russia are slowly diversifying out of dollars and into gold and euros, and we believe this trend will continue.



• Gold also rises during troubled economic times. Be it inflationary or deflationary, either environment means uncertainty and that's when gold stands to attention. We all know how gold performs during inflation as we saw when it soared in the 1970s. A deflationary environment is different but gold's reaction is the same. The Fed already made it clear that they would flood the world with liquidity if necessary to ease deflationary pressures. The huge, unprecedented budget deficits also have to be financed. This is going to hurt the dollar even more and it'll be bullish for gold.



• Gold's supply-demand situation is also favorable. Annual gold production will likely decline in coming years just as demand is surging. For the last 10 years, mines have shut down and the deficit between new mine production and demand will continue to grow. This is good for gold.



• War has always been good for gold too, which is why it surprised many when gold didn't rise during the Iraq war. When war drums are beating, uncertainty causes gold to rise. But that uncertainty was erased when the war started. Plus, gold was overbought and due for a downward correction.
  
  More important, gold was rising well before Iraq. War intensifies a bull market but it doesn't necessarily make one. The intensity of the rise and fall this year was war related but the major and mega trends were already up.



• We know that gold's been one of the best investments in recent years. It's been much stronger than stocks and steadily stronger than bonds. This was beginning to attract attention but the decline over the past couple of months threw cold water on investor sentiment. Nevertheless, as the bull market moves forward investors will take note and that alone will spark interest and new buying.

GOLD'S BIG PICTURE: Bullish

Gold is a cyclical market and it has been since it began moving in the free market. Chart 1 shows these cycles.

First, note that gold bottomed in 2001, right on the 8 year cycle low mark. It rose above its 65-week moving average six months later and it's been rising since then. And as long as gold stays above its 65-week moving average now at $319, the major trend will remain up.

Gold moves in a 1-4 pattern. The #1s are the best gold rises, which are followed by the worst declines #2. The #3 rises are short and the #4 declines tend to fall to new lows.

Gold's been rising in a #1 rise but it did something last December it hasn't done since 1980. It rose clearly above its prior #3 peak when it rose above $330. This was a big step in the bull market. Gold fell below $330 last month. But again, the major trend is most important and gold is bullish above $319.

Within the major uptrend, gold also has intermediate rises and declines, which are not to be confused with the major cycles.

GOLD'S NINE WEEK DECLINE IS OVER

Chart 2A shows the intermediate moves in the gold price identified as A,B,C and D. The As and Cs are the intermediate rises and the Bs and Ds are the declines, and that's been the case since the 1970s. These moves tell us a lot. They tell us when gold is in a good intermediate buy or sell area and if gold is strong or not.

Since late January, for instance, gold was due to decline. It was overbought and the C rise was mature. The D decline began in early February and they tend to last on average 10-12 weeks. Gold fell for nine weeks and the leading indicator was the most oversold it's been in three years (see Chart 2B). This reinforced the decline was due to end soon.

Interestingly, the HUI and XAU gold share indices started up first, signaling a renewed rise was underway. Reinforcing this, the U.S. dollar index also closed at a five week low, indicating renewed weakness. If the dollar index now closes below 97.90, it'll be very weak at a new bear market low, which would be very bullish for gold.

Meanwhile, gold has now closed above $332.50, signaling the D decline is over. An A rise is currently underway, but gold doesn't necessarily have to break into new high territory.

Normally, the A rise will consolidate and reinforce the strength of the previous C rise and it lasts about 12 weeks. In other words, gold could rise back to test the $380 high and if it stays above $330, the big picture break out since December will be solid.

If gold, however, reaches new highs during this A rise, it'll be super strong and $415 would then be its next but not ultimate upside target.

  By Mary Anne and Pamela Aden
  April 22, 2003

  This commentary has been provided courtesy of adenforecast.com

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 http://www.adenforecast.com