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Gold is soaring. It’s quickly
closing in on the all important $1000 level but most people are looking
elsewhere.
The economy is the hot topic and
everyone’s talking about recession. Opinions are running rampant,
discussions are endless and this is making people nervous. The Fed is very
nervous too.
FED TO THE RESCUE, AGAIN
As signs became obvious that the economy was
in serious trouble, the Fed hit the panic button. This followed steep
drops in the Dow Industrials and sharp declines in several of the other world
stock markets. Knowing the importance of these market signals and
probably fearing a crash, the Fed abruptly slashed interest rates.
As we’ve often said, when push comes to
shove, the Fed will do whatever it has to do to keep the economy afloat and
to avoid a recession. That was clearly illustrated last month and if there
was any doubt before, it’s now more obvious than ever that the Fed has
been, and will continue to take the inflation path. This is not only true of
the Fed but of all the world’s central banks.
As you know, money has been pouring into the
system for quite a while now. Credit is cheap and it keeps getting cheaper.
Money is now also going to be given away to over 100 million people in the U.S. to the
tune of about $150 billion. It’s even going to be given to people who
don’t pay taxes, all in the hope that they’ll spend this money to
help ward off a recession.
If that doesn’t do the trick,
we’re sure the Fed and the government will come up with more
inflationary ideas, and if this results in more inflation and an even weaker
dollar, and it will, then so be it. There’s really no other choice.
GOLD TELLS THE STORY
As our good friend Chris Weber sums up…
“Investors are being handed engraved invitations to protect their
wealth by getting into the prime inflation hedges: the precious metals.
The way I see it, pain is inevitable in an economy that has lived beyond its
means for decades, and borrowed to make up the difference. Any pain that is
forestalled by cheap money and credit is going to be balanced out by the
greater inflation to come. And that is exactly what the precious metals
markets are signaling.”
Whether the economy ends up falling into
recession or not, there’s no question that gold is benefiting based on
what’s happening. It’s risen strongly since 2001,
it’s currently at a new record high and it’ll continue to move
higher (see Chart 1A).
In fact, gold, silver and most of the gold
shares are about the only markets to show significant gains so far this year.
This too is illustrated on Chart 1.
As you can see, gold is hitting new, or
multi-year highs against the euro, the Dow Industrials, bonds and oil. In
other words, it’s stronger than these other markets. Gold is
outperforming them and the percentage gains are greater in gold compared to
all of the other markets.
Simply put, gold is where you want to be. Silver
is super strong too. These are the best markets, and if you’ve been
banking on other markets, then you’ve probably been disappointed. That’s
why we’ve consistently stressed keeping a large part of your
investments in gold, silver and their shares. We also think it’s important
to keep a good portion in cash, in the strongest currencies.
UNCERTAINTY & CONCERN
If a recession does materialize, it’s
going to slow demand for most items because consumers will be cutting back. Already
we’re seeing signs of this. A recent poll showed that most people plan
to save their economic stimulation checks, or they plan to use them to pay
down debt. If they do, that’s not going to help the economy much, but a
lot will depend on sentiment at that time.
For now, sentiment is down along with consumer
confidence. Consumers are concerned about their jobs, a recession, housing
prices, high oil prices, and even the falling stock market. They’re
feeling uncertain about the future and as long as that’s the case,
it’ll keep a break on the economy.
At the same time, however, stocks have been
moving up. The stock market is obviously pleased with the sharp interest rate
cuts and the stimulation package. The market is still cautious and it’s
not out of the woods. But the stock market looks ahead and if it
continues to rebound, this will be a positive signal for the economy,
indicating that the Fed will probably be successful in avoiding a recession
or a worst case scenario, as it has in the past.
KEEP AN OPEN MIND
This of course is contrary to what most experts
are saying. For dozens of reasons, the majority feel we are not only going
into a recession, but that it’s going to be a severe one. Some are
talking about the beginning of the end of the financial world as we know it.
We’ll see what happens but over the
many years we’ve been in this business, we’ve noticed that, when
all is said and done, things rarely end up as bad as they may seem. Even
though there may be many valid reasons why a worst case scenario could
evolve, it rarely does. Markets survive, economies survive, people make money
and they lose money, markets move up and they move down, change is inevitable
but that doesn’t have to mean disaster is coming.
Most important is to keep an open mind and
stay flexible. Allow for surprises and don’t stubbornly hold onto an
idea because you think it’s right. The markets will tell us
what’s happening and if a market changes, we’ll change with it.
KEEP YOUR GOLD POSITION
As for gold, it should do well in either
scenario. Gold rises during times of uncertainty, it rises during times of
inflation and easy money, it rises when the dollar is weak, and all of this
is currently keeping a strong foundation under the gold price.
So again, keep your gold for the long-term. It’s
today’s best investment and it’s been a great investment for
years. Despite normal ups and downs, we strongly believe you’ll be glad
that you continued to hold onto your gold, and of course your silver too.
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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