Sisters:Gold is a good buy now! by Mary Anne &
Pamela Aden - May 27, 2009
Gold is starting to take off. The U.S. dollar
is breaking down. These and other markets like global stocks
and bonds are signaling that the worst of the financial crisis
is behind us.
Remember, the markets lead and they’ll start moving well
ahead of the world economy.
GOLD IS SURGING
Currently, gold is showing real strength. This clearly appears
to be the onset of what we call a “C” rise. These rises are
the strongest rises within the bull market when gold has consistently
reached new record highs.
Plus, the fundamentals continue to reinforce this. The rescue
packages alone mean that gold will be the beneficiary of this.
That’s especially true when we sit back and put what’s happening
Probably the most shocking revelation was how much this economic
bailout is going to cost and how fast the numbers keep growing…
ASTRONOMICAL & STILL GROWING
At last count, the Federal Reserve and the government have
either lent, guaranteed or spent $12.8 trillion in their efforts
to get the economy back on track. We know that these numbers
lose their significance after a while and it’s hard to relate
to them but we’ll try…
You may remember a couple of years ago when a study was done
by two respected economists estimating that the total cost
of the Iraq war would eventually reach $2 trillion. At the
time, people were shocked. But compared to the nearly $13
trillion for the economy, the Iraq war expenses now seem small
Looking at it another way, the value of all the gold in existence
since the time of Christ is currently worth about $2 trillion.
In other words, just the costs to bail out the economy and
nothing else, like Social Security, military, infrastructure,
is so far going to be more than six times all of the gold
that’s been produced over the past 2000 years. (Just last
December the cost was three times, which illustrates how quickly
the costs have multiplied over the past five months.)
MORE THAN HISTORY IN THE MAKING
This is beyond shocking and it’s difficult to know what the
full extent of the repercussions will be in the years ahead.
Obviously, the dollar will fall sharply and gold will soar
(see Chart 1). Interest rates will eventually move much higher
and bonds will plunge.
Beyond that, we’re entering uncharted territory so no one
really knows because there’s never been a crisis of this magnitude
in the history of mankind. Ultimately, the spending will probably
make things better for now, but there’s a high price to pay
to get from here to there.
This has raised many questions and we apologize for not being
able to personally answer each of your e-mails. If we did,
we wouldn’t get much else done. But we do read every e-mail
and here’s what’s on your mind…
FREQUENTLY ASKED QUESTIONS
Q. Are years of deflation ahead a good possibility?
A. Yes, this is indeed a possibility. Even
though the world’s central banks are doing everything they
can to avoid this, deflation is already taking hold.
Real estate prices, for instance, continue to drop at a record
pace, 10% of the U.S. population is now receiving food stamps,
unemployment is at a 25 year high and consumer prices posted
its first year-over-year decline in 54 years.
So even though we believe that inflation has the upper hand
and it’ll eventually emerge as a result of the massive spending
and other government actions, it’s important to keep an open
mind and recognize that anything is possible. As we’ve often
said, this is a time to be flexible, alert and open.
Q. Is it possible to see gold rising in
a recession or disinflationary environment?
A. Yes it is. That’s essentially what it’s
been doing for the past eight years. Gold rose steadily during
the tech boom collapse and throughout the current crisis.
As the economy worsened, gold benefitted as a safe haven during
times of uncertainty, as it has throughout history, including
the Great Depression.
At that time, the gold price was fixed but the two largest
gold companies gained five and six times in those four years.
Over the past eight years, gold has gained nearly 300%. That’s
a lot better than most other investments and this will continue
whether we see more recession, deflation or inflation.
Q. Do you think Obama, central banks or
others can push the gold price down?
A. Temporarily yes but the major trend will
always prevail, despite short-term setbacks. The IMF, for
example, may soon be selling their gold but that may not affect
the market because there’s so much demand out there.
Q. When you say you may be selling shares
during the rebound rise in stocks, does that include gold
A. No. Gold shares move with gold. Even
though they can temporarily be affected by stock market movements,
gold is the driving force and as long as it’s headed higher,
gold shares will rise too.
Q. Is this a time for bargain hunting?
A. Yes. Many stocks are good buys now. And
with commodities and metals starting to rise, the metals shares
are looking very good.
Q. Mining stocks are at a point where they
were when gold was about $450. Why?
A. There’s no question that gold shares
have been weaker than gold since early 2008. This year gold
shares have been stronger than gold and that’s primarily a
rebound from extremes. As fear gripped the markets, investors
fled to gold as a safe haven. But now that fear is easing,
gold shares are again attractive.
Q. Is gold a good buy now or should I wait,
or buy in increments over one year?
A. Gold is a good buy now. If you don’t
own any, buy. Currently, there is more availability and the
premium on popular one ounce gold coins, like Gold Eagles,
Maple Leafs, Krugerrands and Philharmonics have come down
and they’re almost normal again.
Currently, we feel it’s most important to have the majority
of your portfolio in metals and cash. Metals, primarily gold,
because it’s the best in this environment and cash, which
should be held in the strongest currencies.
Mary Anne & Pamela Aden are well known
analysts and editors of The Aden Forecast, a market newsletter
providing specific forecasts and recommendations on gold,
stocks, interest rates and the other major markets. For more
information, go to