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This month has been extraordinary. The markets have
been wild, swinging up and down in big moves we haven’t seen in years.
THE COMMODITY SURGE...
Oil, for instance, soared to a new record high,
rising 18% from June 3 to July 3 alone, gold had its biggest one day upmove
in 23 years, commodities surged, ending June with their best first half in 35
years, and stocks plunged. And then the markets traded places.
Gold and oil fell sharply. But despite the declines,
these markets are still very strong and bullish (see Chart 1).
Due to oil’s decline, however, inflation
concerns are temporarily easing. Investors are breathing easier.
They’re feeling better about the credit crisis because of the housing
rescue bill, which will likely become a reality. If so, it will be extremely
inflationary,   simply
because of the magnitude of the amount of money involved.
GOLD LOVES INFLATION
As you know, inflation is great for gold and the
other precious metals. In fact, the overall environment couldn’t be
better for metals, resources and energy looking out to the years ahead.
That’s why we’ve consistently recommended buying and holding for
the long-term.
Even though these markets will be volatile, moving
up and down, by riding this mega uptrend over the long haul you’ll do
very well.
A recent study of thousands of investors confirmed
this. Those who traded the least made 7% more per year than those who traded
most often. And while weeding out underperformers and lightening up on some
positions is normal, the overall fundamentals strongly reinforce our
strategy.
With the economy slow, the Fed can’t raise
interest rates to curb inflation and help the dollar like it normally would
because it could push the economy into recession. So its hands are tied and
inflation will continue to flourish for a long time. This is happening
worldwide.
Money supply is soaring and inflation is the result
of this. Inflation’s at a 10 year high in emerging countries,
it’s surging in Europe and prices in Japan are rising at their fastest
rate in 27 years. Plus, wholesale prices in the U.S. had their biggest jump
in six months last month, soaring at a nearly 17% annualized rate.
OTHER REASONS WHY GOLD IS RISING
Then there’s the ongoing government spending,
which isn’t going to change either and that too is one of the primary
factors fueling inflation. Massive spending means more money is needed, and
more money means more inflation. Again, it’s that simple.
Currently, the U.S. is in debt to the tune of over
$500,000 per household, taking future liabilities like Social Security into
account. The defense budget is at a post World War II record, and the list
goes on.
These are the fundamental, primary reasons
propelling prices, inflation and gold higher, and the housing rescue bill
will provide an even more solid base for the long-term bull market in gold.
But there’s more and these are playing an important role too…
CLIMATE CHANGES GETTING WORSE
Over the years, we’ve also mentioned climate
change and its effects were clearly illustrated last month as well.
The worst floods in 15 years destroyed around five
million acres of farm land, piling up losses of over $3 billion. This was a
huge factor pushing the price of corn up to new record highs. High corn in
turn drives up the prices of chicken, milk and eggs, and these higher prices
help push inflation higher.
Most important, this was not an isolated incident.
There were also massive floods in Southern China, over 1000 wild fires in
California, more droughts, typhoons, and the most rain on record in Northern
India.
In addition, the Himalayan glaciers, which support
over one billion people, are melting and there’s a strong probability
that ice at the North Pole will melt this Summer. Antarctic ice cores show
carbon dioxide levels at the highest in 800,000 years.
China has now overtaken the U.S. as #1 in carbon
dioxide emissions. And while most countries are making some effort to tackle
the situation, so far it’s too little. Unfortunately, this strongly
suggests that we’re going to see a lot more climate change, along with
its effects like higher commodity prices, inflation and gold in the years
ahead.
So it’s a vicious circle…spending, money
and higher oil drive inflation higher and combined with these other factors,
they all keep upward pressure on gold, the other precious metals and
commodities. So we can’t stress enough… invest for the long run,
at least with the main portion of your portfolio, and you’ll be glad
that you did.
For now, gold is correcting downward, which is normal.
We call this a B decline and it’ll likely be moderate. Gold will remain
strong by staying above $900. The same is true of oil above $115.
Mary Anne and Pamela Aden
Editors, The Aden
Forecast
Aden Forecast.com
Mary Anne and
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.
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