Aden
Sisters:Gold is a good buy now! by Mary Anne &
Pamela Aden - May 27, 2009
Buy
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 into perspective…
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 in comparison.
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 shares?
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
www.adenforecast.com